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Hannah Drake By Hannah Drake • January 7, 2019

Patient referrals and out-of-pocket costs: How referral management helps health systems reduce patient leakage and keep costs down

In "The Hidden System That Explains How Your Doctor Makes Referrals", the Wall Street Journal depicts referral tracking and management by health systems as a practice where keeping patients within a specific health system is motivated primarily by wanting to keep resulting health care dollars within the system, with little regard for higher out-of-pocket expenses for patients and the effect on the overall healthcare cost in America. While the article does mention care coordination, reducing costs and improving quality as goals for keeping referrals "in-house" by various health systems, the article falls short of mentioning exactly how this is accomplished and what the impact is.

From the WSJ article:

Patients are often in the dark about why their doctors referred them to a particular physician or facility. Increasingly, those calls are being driven by pressure to keep business within a hospital system, even if an outside referral might benefit the patient, according to documents and interviews with doctors, current and former hospital executives and lawyers. . . The efforts at “keepage” can mean higher costs for patients and the employers that insure them—health-care services are often more expensive when provided by a hospital. Such price pressure and lack of transparency are helping drive rising costs in the $3.5 trillion U.S. health-care industry, where per capita spending is higher than any other developed nation.

Working for a referral management software company, I can tell you one thing for certain: Our clients' commitment and continued investment in optimizing referral practices tells us health systems do care about patient out-of-pocket expenses. You can ask anyone on our client team or product team - it seems that, beyond the "par8o referral optimization basics", our clients are constantly innovating and pushing the limits of our product to create the best, most cost-effective, comprehensive referral process possible - for both their provider networks and their patients. And yes, care coordination, reducing costs, and improving quality are all factors.

The WSJ article also briefly mentions that insurance companies are trying to steer patients away from hospital facilities for certain procedures to encourage lower costs. But this is just one area where healthcare systems, including healthcare technology companies like par8o "fight the good fight" to help keep costs down for patients in the ways that they can.

Could an outside provider be a "better" provider for the patient? Sure. And it's within the patient's rights to go there, anyway - at their own expense. But our health plan clients use referral pattern data to attempt to bring "desirable" out-of-network providers within the network, because quality and patient satisfaction metrics are important.

For our larger and more complex clients consisting of multiple provider networks, several different hospitals, and multiple ACOs, par8o takes referral tracking and management a step further by attempting to include insurance acceptance within the referral recommendation algorithm for all insurance plans available within each state - a huge feat.

What's "Baked In" to par8o's Recommend Provider Lists

The task of recommending specialists that accept a patient's plan within a designated network of providers  would be insurmountable for the typical medical receptionist who is often tasked with check-in and check-out in between answering phones, emails, scheduling, and taking co-pays. Let's imagine a scenario where the first patient who receives a referral has Medicare Advantage. The recommended provider list that par8o generates for that patient is limited to providers that accept Medicare patients, in addition to being in close proximity to the referring office, within the client's provider network or health system, is responsive to patients, communicates well with the referring office and has high patient satisfaction ratings.

The next patient has Blue Cross Blue Shield Open Access Gold, the third patient might be using Worker's Comp, and the patient after that is employed by a company that offers a self-funded insurance plan that has a relatively small network of providers.

Knowing which providers take each plan - for each specialty - in each location - at each office - that has availability - well, it's a complicated area. And this is one area where technology like par8o takes the lion's share of the responsibility away from referring providers, support staff and to a certain degree patients, easing the burden and presenting the "best" providers to each patient that will keep costs down for everyone.

Minimizing Out-Of-Pocket Expenses for Patients

Insurance matching "par8o style" - which would be much easier if insurance companies cared to share provider participation and cost data with us in an on-going, scalable, automated way - involves collecting and updating provider insurance acceptance from each office both before and after implementation through a combination of client-provided file uploads, office surveys, and in-app tools accessible by each office manager. Then, when a patient with XYZ Insurance - Gold Plan is referred within our product, we prioritize and highlight specialty providers that accept that plan. And we do that for the next patient, and the next, and the next.

By attempting to meet the multiple objectives that go into selecting the best referral option for each patient, the health system meets its own objectives - namely, reducing "patient leakage" and ensuring its primary care and Internal Medicine docs refer to specialists also employed by the system or participating within a provider network - while increasing the quality of patient care and keeping overall costs down as much as possible.

Where Patient Responsibility Applies

But let's get back to one of the grumblings about the referral process. 

Jim Wood, a manufacturing-company executive, said his doctor, who worked for Rockford, Ill.’s SwedishAmerican, annually ordered his lab tests done by the hospital, with bills that amounted to $529.85 in 2015. The next year, Mr. Wood had the same tests done at an independent lab instead. The total cost: $57.83.

His doctor suggested he get a shoulder MRI from a mobile SwedishAmerican site, at a total cost of $2,507.36, including the radiologist’s fee, of which he had to pay $626.85 out-of-pocket. When he later checked what the scan would have cost at a local imaging center, the estimate was under $300, not including the doctor’s fee.

This report isn't the first of its kind and surely won't be the last. Given the complexities present within each insurer's plans, making sure that the referred-to provider, facility or location is the most economical option within a provider network that takes his or her insurance is still the responsibility of the patient, especially given insurance tiering that is so common-place. Add to this the increase in cheaper self-pay options for a variety of tests, and the wise healthcare consumer is one who stays alert to what's available on the open market, because insurance-recommended options aren't always the most cost-effective options - even if they were at one time.

That said, health systems and provider networks that employ referral tracking and management software are doing what's currently within their power to optimize referrals for the trifecta of referral management goals - cost, quality and care coordination - but the golden mecca of ensuring the referred-to provider or location is the cheapest option for the patient will remain the next frontier of referral optimization until insurers, imaging facilities and direct-to-consumer testing companies decide to open up cost information to healthcare technology companies like par8o.

Simply put, if a healthcare system wants to refer patients to other providers within the same healthcare system, it's not simply a business decision that turns a blind eye to more expensive out-of-pocket costs for patients- especially if they're using a system like par8o. Ultimately, patients still and will likely always have a responsibility to check which providers or facilities are preferred by the limits of their insurance plans - but rest assured we're "fighting the good fight" to get our client's patients nine-tenths of the way to the best, most well-rated, most cost-effective providers in close proximity and in their PCP's or internal medicine's provider network.

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