While target audiences have been receptive to these offerings, the inclusion of these benefits has also raised costs of membership maintenance to providers. By leveraging strategic sourcing best practices, providers have been able to reevaluate these plans, restructure their pricing model, and capitalize on the value of wellness programs by enhancing their plan offering and improving member health while reducing membership maintenance costs.
In one instance, Source One was engaged by a large health insurance provider with the need to reduce the cost of their Wellness Program. Source One performed a benchmark analysis that compared the structure and pricing model of the existing program to others of similar nature. The main focus of this effort resided on pricing rationalization and the identification of potential savings opportunities, in order to lower the monthly cost of the operation while increasing program utilization.
At the time of the engagement, the compensation structure was complex, it was based on a compound pricing model inclusive of a monthly administrative fee known as “Per Member, Per Month” (PMPM) fee, and a “Per-Visit” fee. The monthly PMPM fee total was determined via a stepped calculation, which applied a tiered rate to the amount of eligible members per threshold. Based on these fees and total membership volume, the provider was being given an allowance of monthly member visits to participating facilities at no additional cost. However, once this monthly allowance was surpassed, the Per-Visit fee was paid for every member visit in excess of that allowance. This pricing model was both complex, and uncommon.
Upon conducting a preliminary pricing review and diligent research, Source One’s market intelligence demonstrated that using a tiered PMPM fee model was representing tens of thousands of unwarranted fees on an annual basis, and that not only did the current pricing calculation not obey a typical pricing model observed by other health insurance providers; but it also evidenced that the PMPM rates themselves were higher than fees given to providers with similarly sized memberships.
During the market analysis phase, it was established that the Per Visit fee was in fact substantially lower that fee averages observed outside. However, it was also determined that Per-Visit fees were not representing any portion of the client’s monthly or annual spend. The reason being the utilization allowance was never been exceeded, in fact, utilization levels were assessed at less than twenty percent of the monthly visit allowance. To Source One, the realization of this situation immediately became an opportunity to explore a win-win situation.
The benchmark analysis resulted in Source One presenting the provider with a solution for their upcoming contract renewal. Recommendations were provided around shifting from a stepped PMPM monthly calculation to a straight calculation solely based on total membership. It was also clearly established that reducing the PMPM fee, would directly decrease the monthly cost of the program. But more importantly, a case was presented that in addition to shifting to a lower/reduced PMPM fee to below market levels, a higher Per-Visit fee should be considered and the utilization allowance removed or decreased substantially.
While this recommendation seemed unorthodox at the beginning, it was agreed that increasing the Per-Visit fee to market average levels, and eliminating or substantially reducing the utilization allowance, provided the maximum benefit potential; primarily because under this model, the monthly revenue to the Wellness Program supplier would largely depend on member utilization, and consequently, the supplier would be intrinsically motivated to promote their program amongst members in order to make up for reduced revenue caused by a lower PMPM fee.
By promoting the program and increasing awareness, member utilization levels would increase accordingly. This expected increase on utilization represented a key opportunity to our client to reduce direct membership maintenance costs on the back end; as it was reasoned that as members took advantage of the benefits of the program, their health would improve ipso facto, thereby reducing the number of filing claims and consequently lowering member costs to our client.
The premise of a symbiotic correlation between a reduced monthly cost for our client, improved health levels for its members, and increased potential for profitability for the supplier warranted the support of the provider’s internal actuarial group to validate this strategy and measure impact levels. In addition to these tangibles, shifting responsibility and accountability of the program back to the supplier provided additional soft benefits, as it enabled service levels to be monitored under tighter controls and increased transparency on supplier performance. Not to mention any additional benefits generated through member satisfaction and widespread service adoption.
The negotiating leverage that facilitated presenting these requests to the supplier was gained based on market intelligence that demonstrated that competitive markets were opening up as new suppliers were allowed to compete in an environment that had been previously monopolized.
Source One’s recommendations around pricing and processes were deemed innovative, and our insights on current market conditions provided the necessary platform for the provider to execute on those recommendations and conduct effective negotiations. By weighing the cost of service and the benefits it would bring to the provider and its members, Source One discovered a viable path to decrease the cost of member maintenance, which led the insurance company to closer alignment to its strategic goal of offering more competitive healthcare plans at lower costs.