In the late 1990s, you could have taken what hospitals charged to administer inpatient chemotherapy and bought a Ford Escort econobox. Today, average chemo charges (not even counting the price of the anti-cancer drugs) are enough to pay for a Lexus GX sport-utility vehicle, government data show.
Hospital prices have risen nearly three times as much as overall inflation since Ronald Reagan was president. Parties that pay hospitals have tried HMOs, accountable care organizations and other innovations to control them, with little effect.
Elap Services, a small benefits consulting firm based in Chester Springs, Pa., is causing a commotion by suggesting an alternative: Refuse to pay. When hospitals send invoices with jaw-dropping charges, Elap tells its clients (generally medium-sized employers) to just say no.
Instead, these clients pay much lower amounts, based on Elap’s analysis of what is reasonable after analyzing the hospitals’ financial filings.
This unusual strategy is a disruption of business as usual, to say the least. Hospitals are unhappy, but they have failed to make headway against it in court.
“It was a leap of faith” when Huffines Auto Dealerships, which covers 300 employees and their families, signed on to the Elap plan a few years ago, said Eric Hartter, chief financial officer for the Texas company.
What he says now: “This is the best form of true health-care reform that I’ve come across.”
Huffines first worked with Elap on charges for an employee’s back surgery. The worker had spent three days in a Dallas hospital. The bill was $600,000, Hartter said.
Like many businesses, the dealership pays its workers’ health costs directly. At the time, it was using a claims administrator that set up a traditional “preferred provider” network with agreed discounts at various hospitals.
The administrator looked at the bill and said, “ ‘Don’t worry. By the time we apply the discounts and everything else, it’ll be down to about $300,000,’ ” Hartter recalled. “I said, ‘What’s the difference? That doesn’t make me feel any better.’ ”
Instead, he had Elap analyze the bill. The firm estimated costs for the treatment based on the hospital’s financial reports filed with Medicare. Then it added a cushion so the hospital could make a modest profit.
“We wrote a check to the hospital for $28,900 and we never heard from them again,” Hartter said.
Now Huffines and Elap, which launched this service in 2007 and has been growing since, treat every big hospital bill the same way. The result has saved so much money that what the dealership and workers contribute for health-care costs stayed unchanged for six years while benefits remained the same, Hartter said.
More than 200 employers providing health coverage to about 115,000 workers and dependents have hired Elap. Steve Kelly, the company’s chief executive, said he is aware of only one other benefits consultant with the same approach.
Normally, customers who don’t pay bills get sued or otherwise pressed for payment. This sometimes happens to Elap clients. Hospitals send patients huge invoices for what the employer refused to pay. They hire collection agents and threaten credit scores.
Elap fights back with lawyers and several arguments: How can hospitals justifiably charge employers and their workers so much more than they accept from Medicare, the government program for seniors? How can hospitals bill $30 for a gauze pad? How can patients consent to prices they never see until after they have been discharged?
The American Hospital Association and the Federation of American Hospitals did not respond to requests for comment about Elap.
Elap is not merely an auditor that combs bills for errors. It sets the reimbursement, telling hospitals what its clients will pay.
Eventually, “overwhelmingly, the providers just accept the payment” and leave patients alone, Kelly said. A federal district judge in Georgia decided a 2012 case against a hospital and in favor of Elap and its client, a chain of furniture stores.
With Elap’s approach, neither employers nor their claims administrators sign contracts with hospitals. Employers detail the reimbursement process in documents establishing how the plan covers workers. That gives it legal weight, Elap has argued in court. Elap agrees to handle all hospital bills for an employer and to defend workers from collections in return for a percentage fee tied to the employer’s total hospital charges.
There is no hospital network. Employees may use almost any facility. Payments are made based on Elap’s analysis of the hospital’s bills.
That may change, Kelly said. Often it makes sense even for medium-size employers to contract directly with hospitals to treat their workers, he said. That way, prices are clear.
But for now Elap clients such as Huffines and IBT Industrial Solutions are giving hospitals a different dose of medicine.
At IBT, a Kansas distributor of bearings and motors, “runaway health costs were starting to threaten the long-term viability of our company,” said chief financial officer Greg Drown. After reading “Bitter Pill,” a critical 2013 Time magazine piece about hospitals, IBT executives decided to try Elap.
About 20 percent of IBT workers who use hospitals get “balance billed” for amounts the employer won’t pay, he said. That can take months to resolve even with Elap’s legal support. But Elap’s program cut the company’s health costs by about a fourth, he added.
Recently, a big medical system in Kansas City “finally figured out we were doing something a little bit different,” sent “a nasty letter” and followed up with a call, Drown said.
The hospital executive on the phone “was very condescending and thought I was stupid and had been duped by a predatory consultant and had been sold a — quote — crappy plan,” Drown said.
Drown listened. He told the man he would consult with his colleagues and reply.
“I called him back a week or two later and left him a rather detailed voice mail that said, ‘We’re not changing anything. We’re staying where we are.’ And the guy never called me back.”
This article was produced by Kaiser Health News, an editorially independent program of the Kaiser Family Foundation.