I missed a phone call recently from someone who relayed to our receptionist that he was returning my call.  Although I didn’t recognize his name, I took him at his word, only to find that he was selling an investment in a stock fund and was someone I had never called.  I asked him why he told my receptionist that he was returning my call.  He flatly stated that he knew that would get him past my “screener.”  Basically, he lied, then asked me to send him money.  Interesting strategy, although not a trust-builder!  

It occurred to me that this is how Preferred Provider Organizations get started:  with a lie.  The lie can first be to an employer group, looking for “discounts” or a large “network” of “providers,” although the first lie is usually to the doctors.  It goes something like this:

“Hello, Dr. Smith.  Brand X PPO is interested in contracting with you and the Surgery Center of Oklahoma.  We have a large group of employers, some of which are specifically asking for you and your facility to be included in our network.  We are prepared to pay you 70% of your billed charges in exchange for a huge volume of business.”

The truth is that “…we have a large group of employers” is a lie….a stretch anyway.  The truth is, once a physician or a healthcare facility falls for this deception, then and only then does the PPO have something to “sell” to the employer groups.  The PPO promises to “discount” the charges from the “providers” so the employer’s health plan experiences huge savings.  This is how the PPO justifies its value, by “repricing” the claims, keeping for themselves a percentage of the “discount” provided to the employer.  

As I have explained many times, this perverse arrangement inclines the PPO to seek out the highest bills and charges they can find, as discounting giant bills better maximizes the “repricing” opportunity for them.  Pocketing a percentage savings of $100,000 is more enticing than getting a percentage of a $200 “savings” or “write off.”  Our transparent and online pricing is a disaster for this PPO business model and here’s why.

Since “my prices are my prices” and available to anyone, there is no repricing opportunity.  The PPO brings no value, as their “discounting” services are not needed.  While this is devastating to the PPO business model, worse for them, our online pricing exposes them for what they truly are:  medical ticket scalpers.  

Seriously, why would an employer want to buy a tonsillectomy from an intermediary who is promising “20% off!” rather than buy the tonsillectomy from those doing the tonsillectomy, particularly when the intermediary is incentivized to seek out the most expensive tonsillectomies he can find?  Once the employers and the patients find that they can acquire a tonsillectomy without the PPO scalper for a better price, the scam is undone, revealed due to the transparent pricing.

Michael Lewis’s latest book, “Flash Boys,” describes a similar business plan where high frequency traders surreptitiously interpose themselves, “repricing” stock purchases on Wall Street, pocketing the spread.  With price transparency on the move, this same strategy employed by the PPO’s, is all but extinct as the scam is revealed.  

Why would someone buy from a scalper when one could buy the same thing (or better) for cheaper, without the layers?  This is a question that more patients and self-funded employer groups will be asking themselves as the price transparency movement gains momentum.  

G. Keith Smith, M.D. 

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