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When your health care client is also a provider.

BEING A HEALTH care provider does not necessarily make someone a health care benefits expert. Hospitals in particular have unique challenges as they attempt to manage their rising health care benefit program costs.

Producers who understand this segment and the design implications can successfully grow their business.

The goal of most hospital employee benefits programs is to drive domestic utilization. This serves three primary purposes. First, medical services are delivered in an environment where they have greater control than most employers do over cost and frequency of care. The hospital determines the appropriate level of reimbursement (which may require a separate fee schedule) and sets the practice limitations. It has the greatest ability to control its health care trend when services are delivered internally.

Second, domestic utilization by the hospital's employees is a revenue source to the institution. Few companies like giving revenue to their competitors, and hospitals are no exception. In today's environment, where institutions are looking at all options to increase their revenue flow, this can have a significant impact on their income statement.

Finally, the best advertising for many organizations is when their own employees are also customers. After all, employees know more about their company than most. Domestic health care utilization is a strong endorsement of the institution by the employees.

However, most hospitals have found in the absence of benefit design incentives to impel that behavior, they will not meet their expectations. This is because of a variety of reasons, the most common being privacy. To encourage domestic utilization, hospitals increasingly are employing three-tier benefit programs. The tiers are:

1. Domestic benefits.

2. Preferred provider organization benefits.

3. Non-preferred-provider-organization benefits.

A sample design may look as seen in Table 1.

Alternately, a hospital may employ a health reimbursement arrangement to deliver similar results. Using an HRA would not need a three-tier benefit design and many times can be executed within a cur rent two-tier program. An example may help to illustrate how this would work, as seen in Table 2.

The program includes a $500 health reimbursement arrangement that only reimburses charges incurred at the domestic facility. The higher the deductibles and the higher the HRA benefit, the greater the potential for utilization of the domestic facility.

It is important to keep a couple of issues in mind when designing benefits that encourage internal utilization. What is the scope of services provided by the hospital? The greater the scope, the easier it is to design and put into action a domestic program. If services are limited (as with a specialty hospital), design becomes much more challenging, and the three-tier approach becomes less attractive.

In addition, the hospital needs to address how it will handle physicians and affiliated providers. If the physicians are part of a group that is owned by or contracts with the hospital directly, they are typically treated as internal providers. If the physicians are not part of an owned or contracted group, the hospital needs to determine if they are to be paid at the domestic or PPO level of benefits.

Many times there are other affiliated providers, such as radiologists or laboratories, that work with the facility and the physicians but are not owned or formally contracted with the hospital.

These providers are typically treated as PPO if in the broader network. The hospital also needs to determine how it will structure the pharmacy benefits as part of their review. If the hospital owns a pharmacy, they have a great deal of flexibility in designing a program to encourage domestic utilization. Although uncommon, the hospital may limit pharmacy access only to the domestic pharmacy.

More commonly, the benefits are structured to provide a greater level of benefits at the hospital-owned pharmacy while allowing access through a broader network of retail pharmacies. When this model is used, the benefits may be structured similar to the following:

By encouraging domestic utilization, hospitals are better able to manage the cost of their health care benefits for their employees. But they can't do it alone. They need the help of health care benefits experts to design and implement programs to achieve their objectives.

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Jerry L. Ripperger is a director of business development at Principal Financial Group Inc., Des Moines, Iowa. He can be reached at ripperger. jerry@principal.com
TABLE 1
Sample Design For
3-Tier Hospital Benefits Program

                      Domestic    PPO     Non PPO

Deductible              $250      $500    $1,000
Physician copayment     $20       $40       N/A
Coinsurance             90%       80%       60%
Out-of-pocket limit    $1,250    $2,000   $4,000

TABLE 2
Sample Hospital Benefits Design
With HRA

                       PPO     Non PPO

Deductible            $1,000   $2,000
Physician copayment    N/A       N/A
Coinsurance            80%       60%
Out-of-pocket limit   $2,500   $5,000

TABLE 3
Sample Design For Hospital Rx Benefits

Tier                          Benefit Level

Domestic (all tiers)            $10 copay
Tier 1                 $15 copay + 10% coinsurance
Tier 2                 $25 copay + 20% coinsurance
Tier 3                 $30 copay + 30% coinsurance
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Title Annotation:FOCUS: EMPLOYEE BENEFITS
Author:Ripperger, Jerry L.
Publication:National Underwriter Life & Health
Geographic Code:1USA
Date:Jun 21, 2010
Words:817
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