The Dallas Health Plan, Part 2: What’s Hiding in the Contract? | Mark Cuban, Chris Deacon, Marilyn Bartlett (Ep. 57 – Part 2 of 3)

[00:00:00] Healthcare isn't broken. It's working exactly as designed for the people who never send you the bill. Every year, employers fund more and more care and see less and less of where their money goes. Prior offs, denials, PBMs, markups, stacked on markup. This is the show that says the quiet part out loud. I'm Ralph Weber, The Benefit Whisperer, and if you write the check, you deserve to see inside the black box.

[00:00:28] I was just gonna say one thing that I think is really sneaky with this public procurement in particular, right, is they don't start from the ASO contract per se, right? The way that it works, they issue the technical requirements, they have to confirm that they can do all of them. And there's a standard contract, right, from which they are supposed to work. And instead of sort of moving with the state's document and maybe improving upon that or having a subject matter expert come in, they're not going to be able to do that.

[00:00:57] And then actually negotiate or write an ASO. What they've done is they've lifted, you know, most of Blue Cross Blue Shield's sample ASO agreement. They've lifted the language in it and they've put it in an exhibit to their own document, right? Okay. And within there, there's so many hidden traps. One example, right, they're requiring the TPA to act as a fiduciary, right? They're not subject to ERISA. I love this part, yeah.

[00:01:26] They've done a great job, right? Well done. You've made the TPA a fiduciary, okay? I mean, well, if you want that kind of thing, I find issues with it. But nonetheless, they're trying to do the right thing. But if you go now to the exhibit, right, they have explicitly disclaimed fiduciary status for IDR claims and for all overpayment and shared savings for shared savings programs.

[00:01:53] So, sure, we'll be a fiduciary. We'll sign on that dotted line. And then you read the fine print. And this is where I think the subject matter expertise and being able to review these things and find the hidden, you know, hidden bombs that are within it are so important.

[00:02:09] Yeah, exactly. I ran it through Healthcare Genius. I built a new tool that does a full deep dive and it finds a lot of these things, not to the point where you would, Chris, because you've looked at a lot of them, but at least it gives you a good first pass in seeing these kind of things. Now, Marilyn, let me ask you a question because they're talking about a lot about large claims. I think, what did they say? 120 claimants accounted for $25 million of spending.

[00:02:35] If you are looking at high cost claims as a driver, where do you start? Would you audit every six-figure claim or just 1% of them? No, you'd audit every single one of them and you audit it in real time. And you reach out and you get the hospital billing, the itemized bill, basically. So, you get the codes. And like Mark had talked about before, the 837 helps with that.

[00:03:00] But you skid on it right away and you see you're going to find errors in the billing and you're going to maybe do a case rate on it. But every single one of them you review right away and you work. I put in the contract that the TPA that was processing our claims had to notify me on large claims.

[00:03:24] If we didn't pick them up in our data set, which we had our own data warehouse, but if we didn't pick them up, they had to notify us immediately. That's smart. That's really smart. Because a lot of them says you can't even pre-review. You can't pre-audit claims. That's what a lot of them put in the contracts because they know that you would catch all that stuff. Yes, exactly. And I think with those high-cost claims, it's important to know so many CFOs that aren't sort of exposed to this stuff say,

[00:03:51] but I have a guarantee. I'm good. I have a guarantee in my contract that says I have a discount of X, Y, or Z. Number one, that's an aggregate discount. So, again, if the 1% claim isn't right. The other thing is, really, I think if you're talking anywhere, it's a percentage threshold from a billing perspective.

[00:04:13] But once you hit a certain number from a billing perspective at the hospital, it triggers what they refer to internally as sort of like hospital stop loss. But essentially, once a claim hits a certain threshold, it moves away from negotiated rates. There's no longer a negotiated rate, and it's now a percentage of billed charges. And that's what it's going to default to. So people are sitting around—

[00:04:40] Wait, is that from the ASO side or the provider side? From the ASO side? Yes. Yes. So what you have people walking around thinking their ass is covered because they have this great discount guarantee and all of these performance guarantees, when they're not even paying a negotiated rate. They're paying some number off of a bill charge, again, that they're not going to get to audit until well after.

[00:05:05] And a lot of that's because the carrier wants to get some minimum—the carrier committed to some amount of minimum guarantee to the hospital, and they need to aggregate not just for one client but across all their clients. And so wherever they can get it, they want to get it. So they want to maximize that number, especially if they know you're going to pay it without knowing what you're paying for. You know, there's just all this stuff. Well, that's a really good point because you're exactly right.

[00:05:34] There's that level. And Chris, you have dug into HCSC and HCSC's uniform payment. And this is an HCSC. I wondered if you could share that. Yeah, I'll send it to Ralph and you can share with the group. But it's a public document. It is their commercial payment policy manual. And Mark, it says exactly what you just said.

[00:05:57] Their rates for their hospitals—and this is Blue Cross Blue Shield of Illinois' commercial payment policy—is based upon the revenue generated from the prior year plus five points. And it is evergreen. Yeah, so if that's— Wait, say that again? I'm not kidding. So whatever was spent the prior year—so we don't actually know what that baseline number is, but let's say— And this is an ASO working for a self-insured employer.

[00:06:25] This is a commercial payment policy between the ASO provider, so Blue Cross Blue Shield, and their commercial providers and hospital systems, right? Okay. And what they have agreed to is whatever that base spending number was. And again, we don't know what the base was. Oh, I see what you're saying. The base spending between the carrier and the provider, they're going to guarantee to pay them more. They're going to guarantee five points every year.

[00:06:54] It's evergreen. And they even tell you—again, this isn't a public document—they tell you how they true up with claims every week. Can you send it? You'll send the link of that to Ralph? Yes, I will. Wow. You know what's crazy? I'm sorry. Go ahead, Marilyn. Well, no. And that's great, Mark. I was going to mention this to you because I'm in an HCSC state, and you're in an HCSC state.

[00:07:18] And when your legislature went through with the anti-competitive language, whatever, I kept pushing them, you've got to include this, because we used to call it revenue neutral. And when I negotiated with the hospitals in Montana, that was the first time I ever heard of this. And they said, well, you can do multiple of Medicare, but what are you going to do for revenue neutral? I didn't even know what that meant. And then I started learning that that's very common. And then Chris found this document, HCSC's document.

[00:07:47] We talked to a provider in Illinois who said, oh, yeah, absolutely. And he shared a letter he received from them from an Illinois HCSC saying it's required of all their provider agreements to pay under this system. Wow. Yeah. I mean, Ruff, let me just add one. Go ahead. Yep. These are all vertically integrated companies, right? Yes. The things we're talking about here from an ASO are the exact same things the PBMs do, right?

[00:08:14] So on one hand, when you talk about revenue neutral, you've got to hit a minimum guarantee. On the other hand, with the PBMs, they do it a different way where they talk about volume discounts with the manufacturers, right? So they'll say, they'll go to all the brands and specialty medication, specialty med companies, and they'll say across all of our customers, across all of our 40 million lives, right?

[00:08:39] If we hit 40 million units, right, or whatever the threshold is, you will give us another 5% or 10% or 20%, which means that the individual client, right, the sponsor, the state, whoever, they don't have any way to claw that back, right? They don't have any way to say, well, look, we, you know, if you're 40 million units, we were a million of them. We want two and a half percent back for us. No.

[00:09:07] And it's just like the equivalent of revenue neutral, right? Where it's like we have to guarantee the provider 5% plus every year. They're doing the same thing with number of units to the manufacturers. And so that's why going back, you know, I've got to figure out how to do the same thing I did with the PBM contract, the open source PBM contract.

[00:09:26] We need to figure out how to do the same thing with an ASO contract and also an RFP because the mess starts with the RFPs that the consultants create that benefit the incumbents. And if they're part of, what do they call it? The association? What do they call the consultants that all get paid? Are you talking about the coalition that they create? The coalition, yeah, the coalition, yeah. Yeah, yeah, right. Right.

[00:09:53] No, and, you know, speaking about hospitals, you know, they, I mean, that 5% is, or that revenue guarantee is something that I hadn't heard about described the way that you both have right now. So this is great. But, you know, think, you know, this is the way I think about it. I just finished a paper yesterday that talks about the Medicare, the RAND study, 254% and stuff.

[00:10:18] When a hospital provides service, they don't know, and you talked about 100 days outstanding earlier on this claim. Chris, I think you spoke about that. But when a hospital provides service, they don't know how much they'll get paid, when they'll get paid, or even if they'll get paid. You know, there's erosion. And that's from the carrier and the patient. Exactly. Exactly. More so from the patient, but yeah, from both sides. So, you know, they have that uncertainty.

[00:10:46] And my theory is, is that they build in for that uncertainty. I call it an uncertainty premium, you know. Yeah, of course. You got to get paid one way or the other. But to your points earlier, Ralph, about what will a real business do? Like, Ralph and I went and talked to a hospital, and I do this with every hospital I talk to. I'm like, we all want to know who our biggest customers are, right? Why are you not going through and looking to see which employers are sending you the most number of patients,

[00:11:13] and then go to them and write a direct contract with them? Because you can save them a bunch of money, and your yield will be higher. On Cost Plus Wellness with Baylor Scott White, they told us their yield, even though we're paying less, their yield is much higher with us than it is with other self-insured employers. Yeah, because they're not a collection agency. They're not a subprime lender. And they get paid full amount, right?

[00:11:39] All the costs for denials and the peer-to-peers that the doctors have to do on top of that, and the $700 denial fee or whatever it may be. It's just crazy how people just say yes. That's the mission, right? Convincing employers, cities, states, whoever they are, you don't have to just say yes. And now with these tools we're all creating, Healthcare Genius, the stuff we're doing,

[00:12:06] it's, you know, if they don't use it, they're not living up to their fiduciary responsibility, and somebody's going to make it clear to them it's going to cost them money. Somebody's going to sue them. Yeah, absolutely. Marilyn, I think you were going to say something. No, I think it's a great discussion. One of the things that I just wanted to touch on, Chris mentioned it in the healthcare realm, is the discount. When you go through the hospital price transparency files, you start to see, okay, great, you're going to get a 27% discount.

[00:12:35] That's not on every service. No. It's not across the board. So you've got to really watch that. And then Chris had mentioned this threshold pricing, and we're seeing this more and more and more in the data, where it's in the provider network contract, that if the provider bills a certain amount above the threshold, then they're paid the negotiated rate and a percentage of this. Or they're paid the whole thing right up.

[00:13:05] And is that the charge master rate that they're discounting from, or a different negotiated rate? It's up from the negotiated rate. Up from it. The threshold's here, and here's the negotiated rate. And they put the threshold here. So the negotiated rate is $50,000, the threshold's $100,000. They'll pay the negotiated rate, then a percentage above that. Or the whole thing. A lot of that threshold pricing.

[00:13:33] Chris, talk a little bit about in New Jersey. Now, I know you saved $1.5 billion just on the drugs and then another $500,000 on the medical. What kinds of things did you look at that might be similar to what's going on in Dallas, that they can take from that? Well, I think on the PBM side, it was a different procurement model that shook things up and, you know, that shook $1.5 billion out of the tree. Because we did a reverse auction.

[00:14:02] So I'm not sure how familiar you are with that. But it was a reverse auction for the PBM services. So, you know, they got more aggressive every round we went. That being said, you know, we're still talking about, you know, CVS versus Optum versus Prime pairing off each other. So there's absolutely more there. I mean, I don't know how to ideate this. Mark, maybe you can do this.

[00:14:26] But I always thought, you know, V2, had I been able to stay, would look more like reverse auction from a drug purchasing perspective. I mean, at 800,000 lives, we're literally in pharma territory in New Jersey, right? Yeah. On that Route 1 corridor. Why are we not buying drugs or at least a subset of drugs directly from the manufacturers? And, you know, I always was told the reasons why we weren't. And what were those reasons?

[00:14:57] I would say largely political. Masked, and it's too hard. And, you know, we don't want to upset our vendor relationships. And the manufacturers don't want to do it. Yeah, yeah. Right. And then on the TPA side, we negotiated discount, like unit cost guarantees. So no longer were we sort of evaluating off of discount guarantees at 60% or 70%.

[00:15:21] We were saying, okay, I want to pay X for this DRG and this three-digit zip code. And what your guarantee is going to do for me, you're going to tell me how much that price is going to go up year over year or go down, right? And evaluate the vendors based on those unit cost guarantees as opposed to a discount of a guarantee from, you know, an X denominator that I don't know what it is. Wow.

[00:15:47] You know, and going back to that 1%, because that is a number that they seem to be really proud of. And I think they get fined if it exceeds, if their mistake margin exceeds 2%, they pay $49,500. That's the number I saw. Like, so 1.99%, you're good. Just to put it in perspective, what we spend in the U.S. every year on healthcare, 1% is $151 million a day.

[00:16:16] 1.99% is $300 million a day. That's okay. Wasting that's fine. After that, you got to pay 50 grand. Yeah, it's just crazy. In what world does that make sense? Yeah, it's just crazy. I mean, structurally, everything has to change. Yeah. And, you know, what Marilyn did with Montana, what Chris did with New Jersey, that should have been an open door for them to negotiate real contracts and do it the right way. And what Marilyn did with your direct contract is the real contract.

[00:16:44] That is the template that everybody should use. You pay, because the reality is it's really, really simple. If there is any remuneration to an ASO or a PBM that's related to the cost of care or the cost of a drug, it shouldn't be in the contract, period, end of story. Right. You should get paid for the services that you are providing, period, end of story. Nothing else.

[00:17:11] If I want to pay one of the big three to negotiate prices, great. I'll pay them for that service. Right. If it's, I want to pay him $4 a claim, whatever it may be, you know, great. I'll pay him $4 a claim, but let's pay him for that. I don't want my PBM or ASO making any medical decisions in terms of pre-ass or denials. Right. You've got United saying, well, we're going to do 20% fewer pre-ass. Those are on things like Band-Aids, right? You know, we were asking for pre-ass on Band-Aids.

[00:17:41] We're not going to ask any more for pre-ass on Band-Aids. It's just insane stuff. You've just got to understand why are you hiring them? You are hiring them to provide a service, period, end of story. If you don't want to get paid for your service, I'll go find somebody who will on the ASO side. And that's why, you know, for my companies, we use Sage and racial means there is great. She just pays, you know, we pay her for our services.

[00:18:07] And then on the PBM side, there's a bunch of transfers, the SmithRx, the right ways. There's, you know, there's a bunch of people where pay us for our service. And if employers, city, states, et cetera, just realize that you don't have to do what they tell you, then everything changes. And on the provider side, then you can start doing contracts, direct contracts like Maryland has put together because the job of the TPA is to facilitate that because then you're aligned, right?

[00:18:37] Their job is to get you the best quality at the least expense, whether it's on drug or on, you know, medical JCOs or on care. And the PBM, the same thing. This is not hard. We just have to educate people because, you know, JAR doesn't want to deal with it. They're afraid. And I understand why. Yeah. I do think that for at least Marilyn and I, the elephant in the room is the politics, right? Yeah.

[00:19:05] We've both experienced where folks know what the right thing to do is. They know why they need to do it. They know the numbers behind why they need to do it. And yet they will not do it in order to maintain for whatever political reason, some relationship or, you know, you name it, right? Right. But politics, especially with public sector. Yes. Yeah. Plays such a huge role.

[00:19:31] And I don't know how to solve that nut other than exposure, right? Yeah. Oh, that's what I try to do, right? Name and shame. You guys set the path, right? You guys set the trend and I just try to, you know, walk in the shadow of greatness, you know, and try to, you know, follow behind what you guys have done because they hate naming and shaming more than they hate anything. They do.

[00:19:54] And I think what's really, really bothering me on that is that once people sign these agreements, they just step away from them or they trust their consultant or broker. You can't do that. You're the fiduciary and it's your money. And if you find the 5,500s for that broker, you already know what's going to be in it, like some obscene amount of money, you know, because that's all they care about. Yeah.

[00:20:17] Well, and Mark, you mentioned the RFPs, you know, we could get standard contracts and, but at the end of the day, we allow, as an industry, we allow brokers to run these RFPs sort of blind. I mean, I was shocked to learn when I was helping out a client on an RFP that they don't actually get to see the terms of the RFP. Like one of the major consulting, no, we don't share the questionnaire with you.

[00:20:46] One of the reasons, right? The first question on the questionnaire is, are you willing to pay $50,000 to participate in this RFP? Right. Or have you been in business 15 or 20 years? Do you know, is you, do you have at least one customer that has at least 500,000 members, you know, just stuff like that. Is there a color in your name? Right. You know, does it end in an end, you know? Do you have at least 2% of your people with green eyes? You know, like it's crazy stuff.

[00:21:16] And it's, Chris, I think it's skewed to like the incumbent knows what they do and they put questions in that favor them. And I've seen it a million times. I've seen, you know, tens of millions of savings offered, but there was one thing in the RFP done by somebody with a self-interest in keeping the status quo that disqualified that. So all of a sudden it didn't matter. Right.

[00:21:41] And, you know, so Marilyn, going back to you, what you were saying about the hemophiliacs, you know, again, it has to be caught in real time. As an air traffic controller, you know, it's not okay to count the bodies after. It's just not. You know, nobody wants that. But that's what this industry does. That's what this industry does too. Every day of denial put, you know, for a cancer patient or somebody who's, you know, particularly sick, one day closer to, you know, a bad outcome.

[00:22:08] Like one of the things that I'm now saying to CEOs when I talk to them, I'm like, you have to ask for your denial list from your ASO. Right. Who is it that they've denied that might be particularly sick? Because it's your money. Like I had one instance where somebody had needed IVIG and it was $18,000 a month or this kid might lose their leg.

[00:22:35] And I found out that they were, the plan was from a self-insured company, found the CEO, reached out to the CEO and explained, look, I know you don't know this is going on, but this member's child can lose their leg because this company you hired isn't willing to spend $18,000 a month of your money. Would you do it? Of course. I'm not going to let this kid lose his leg.

[00:22:59] And the point is to what Marilyn and Chris have both said, they don't want to communicate anything, but this is one of the most important things they can communicate that this person with cancer every day delayed creates, makes things worse. And the CEO of that self-insured company has no idea whatsoever. Right. Exactly. Mark, I don't know if you remember last time we were on, we had David Scheinker and Kevin Schulman on.

[00:23:27] David talked about, and Marilyn and Chris, I'm not sure if you know this, they talked about the number, the percentage of procedures that require prior auth from the BUCAs. Some of them were as high as 65% of all procedures, but only 3% actually overlapped among all four. Only 3% of procedures overlapped, which tells me it's just to create friction. It's just to create friction.

[00:23:55] And they know their plans, so they know what to expect because they know the claims. Exactly. That's right. And to Mark's point, you have to ask for the specifics, right? Yeah. So what is your denial rate? What are your prior auths? I was immediately suspect when I heard United saying they were getting rid of this huge amount of prior auths. Yeah.

[00:24:14] Are they getting rid of a majority of prior authorizations that might impact their vertically integrated entities like DME companies or drug companies or any of their provider entities? Are they just making that path easier for themselves? Right. Right? Maybe. We don't know because we don't ask those questions. But having, you know, this is another area in this particular contract with Dallas that they need to pay more attention to.

[00:24:38] That they, in their financial statements that they had to file with their response, they had to list all of their subsidiaries that they have an interest in. And not only do they own 39% of the PBM that they're doing business with, but there are a whole host of other subsidiaries that include providers, that include payment vendors, that include clearing houses, all of which they are going to pay and that they are going to pay them.

[00:25:06] And they actually, in the financial statements, they say how much money is flowing back, you know, not between each individual company, but they do give you an aggregate number. $160 billion. $1 million. It's massive. For United, they had 3,000 plus subsidiaries, $160 billion in intercompany transfers. Right. And here, you know, the subsidiaries, it's definitely, it's well over $200 million going back and forth between the two.

[00:25:33] And, you know, public sector purchasing should, should be very vigilant about conflicts of interest. And how do you know that they're not paying themselves more than market rate or, you know, giving themselves a gold card to, you know, perform any service that they want at their medical? I mean, that's the other, like with UnitedHealthcare, any of these vendors, they might say that they have prior authorizations in place or, you know, with a particular hospital or not.

[00:26:02] But oftentimes they have what they call gold carded these entities. So they pay whatever they bill them. With no pre-op. They don't ask questions. With no pre-op, yeah. Right. And yet they're agreeing to these terms on your behalf.