Applying the PEPM thought process to Physician Reimbursement

A recent message was focused on the challenge of how health benefits costs are equated to the concept of “Per-Employee-Per-Month”, i.e., PEPM. In review, it was explained that a unit cost for employee self-insured insurance per month is assigned to every component of a healthcare plan. In a quick hypothetical example, a typical self-insured healthcare plan approximating a “Platinum Plan”, might establish a PEPM for a single employee with no dependents that costs $ 250+/- (before Rx, other ancillary services, etc.). That premium amount is actuarially determined and then covered by stop-loss coverage.

What the practitioner member of Physician Direct Access (PDA/IPA) needs to understand is that their revenue for providing a requested service is imbedded in the PEPM. That is right. One could get a great deal more complicated and speak to premium equivalents and relative value units, etc., but the fact is the PEPM is a unit of measure that the end-customer, the business owner or manager is charged to arrive at twelve uniform payments a year.

That reality leads PDA to encourage practitioner consideration of current unit charges for “piece work” and the consequent, growing medical management supervision to population management with strategies to lower PEPM costs while managing the spiral of costly disease management. What this is doing is to stimulate physician thought regarding PEPM as the underlying basis for pay for performance.

During 2013, PDA has operated a small program that treats primary care on a PEPM basis with reasonable medical management. There has been a financial surplus. That concept is what the Flagship Physician Network is moving toward with its small group self-insured product. The consumer needs a product that although it is expensed in twelve equal payments (premiums), unlike the “cashed and gone” insurance expense, there is a material opportunity for an accrued nest egg for the coming year. Such savings can be brought about by: (1) the leadership of the physicians, (2) Flagship management and the benefits agent, (3) the business owner/operator and (4) the individual employee. When this team has full understanding and healthcare is physician directed, the results are exciting. That is why thinking about PEPM is so important. When the curtain is pulled back, PEPM is the real basis of how everyone is paid.

The Expanding Participation in the Blog Message

The original “blog” began in the spirit of the “Monday Morning Fax” message that was created first at the JVE (The four Presbyterian hospitals [owned and affiliated] and over 1,000 practitioners), and subsequently at Southwest Physicians Associates (a multi-county physician owned contracting entity which was acquired by a public physician management company and later re-released and re-invigorated. SPA is an outstanding physician led services company).

This concept of a brief, timely… weekly message has been going since 1987. Today, the message is continuing to morph with the influence of the Physicians Direct Access IPA and the burgeoning new Flagship Physician Network product. And, that is today’s message of change.

Initial Monday morning messages from PDA were directed to member physicians. That began to change with requests from venture capital players, past and current management associates, healthcare service organizations, and entities that relate to healthcare reform changes. For example, an avid follower of the blog is a national company that is highly successful selling the financial and legal skill-set to unwind troubled physician practice organizations. Another interested follower is Google. Can you believe they study traffic on the Internet because the messages/blogs pay for advertising placement?  They pay for space on the Flagship websites. It is interesting how the blog is evolving with the times and Flagship’s expanding role.

This is a timely message as a new group of interested professionals are awaiting their weekly blog. These new readers are the benefits consultants and agents that seek to sell self-insured, community centered health plans. They are welcomed!


Not only do these licensed “pros” sell the Flagship’s proprietary product, but they also reflect the original purpose for the creation of this healthcare ecosystem. That is the healthcare melding and inter-connectivity of benefits and quality, cost effective healthcare. So, welcome to the new generation of Flagship Physician Network marketers. They are about the business of placing the Flagship in every work site with ten to two hundred and fifty commercial workers.

Hooray! That new market is the independent practitioner’s future. Here come the marketers led by Byron M. Gillory, Executive Vice President of Sales and Marketing for Group Warehouse, Inc. Thanks to Mr. Gillory, this blog may be read by 300 agents in north Texas.

Let the Flagship hear from you. Opportunities in Medical Management, Utilization Review, Chronic Disease, Biometrics, Telemedicine, Company Physicians, Agents, etc., are taking shape.

Predicting the ICD10 Rollout

“An on-going PDA dialogue”

Havoc is a predicted descriptor of the Oct. 1 deadline for nationwide conversion to the ICD-10 codes. According to many healthcare information technology professionals it will be a rough change. But, providers can still take steps over the next six months to mitigate some of the disruption. And there is a general belief that CMS will be the most likely the moderator of that disruption; for now, the agency is speaking tough. Marilyn Tavenner, CMS Administrator, has gone on record that there will be no passes for non-conformance.

It is reported that, CMS has authorized contractors processing Medicare claims to perform one-way testing with select providers submitting ICD-10 coded claims. The CMS also committed to conducting more robust “end-to-end” testing later this summer. What that means in detail remains to be seen. But, it is necessary for providers and third party payers to know if the systems are prepared for ICD-10.

“CMS testing”, Govender said, is “absolutely necessary for both providers as well as third parties,” such as claims clearinghouses, to know whether the nation’s largest healthcare payer and providers are prepared for ICD-10.

For providers, investing now in physician training on documentation with the more complex and granular ICD-10 codes is a key moderation strategy. The end game from a CMS point of view is “to push physicians to change documentation habits to allow pay-for-performance,” One authority says. “Now, we have leverage with ICD-10 to get them to document, not only to support ICD-10, but also value-based healthcare.”

Even with these preparations and good intentions, the IPA remains skeptical about a successful ICD-10 implementation on Oct. 1; Hopeful, yes…but quite apprehensive.

How does Per-Employee-Per-Month (PEPM) Relate to What a Physician Is Paid?

This material is so important that it is re-submitted for your review. This is how every member of the Flagship and PDA are paid. The line item dollars per CPT Code all relate to this message. PDA has forty managed care contracts and each one all link back to an individual or employer paying a premium. We get it.

Focus with Physicians Direct Access, your IPA, on how commercial insurance pays you as a practitioner. Let us begin with BUCHA (Blues, United, Cigna, Humana, Aetna, etc.) and their annual determination of the payment for an office visit. Through a twisting pathway, the payment is ultimately determined and plugged into a charge master (pricing list) that represents all specialties, facilities, etc. The physicians can see patients and bill as they wish.  But, the re-pricing of the claim will pay the contracted amount less co-pays regardless of the physician’s bill.

Now, if a company in the community is considering a self-insured healthcare benefits option, there is undoubtedly going to be a financial comparison between the BUCHA services and the Flagship Physician Network (FPN). That comparison is going to be over the entire range of services and pricing. Imbedded in that analysis is the comparison between the FPN value versus the BUCHA network and panel of caregivers. Insurers typically use a per-employee or per-member-per-month value to determine the cost and rate for group health insurance programs. The total funding generated by the PEPM creates the pool of money used to compensate physicians, hospitals, outpatient facilities, and all other aspects of medical providers.

Example:  Individual and workforce actuarial rating and health reviews (could include pre-contract biometrics and employee interviews) for a 54 employee company:

41 in “Employee Only” class:  Monthly PEPM $465.47 generates $19,084.27 in premiums monthly

5 in “Employee & Spouse” class:  Monthly PEPM $1,019.35 generates $5,096.75 in premiums monthly

5 in “Employee & One Child”:  Monthly PEPM $865.74 generates $4,328.70 in premiums monthly

3 in “Family”:   Monthly PEPM $1,414.98 generates $4,244.94 in premiums monthly.

Total of 54 Employees generate $32,754.66 total monthly premium.

Monthly PEPM in this self–insured model is $32,755. And, that expense covers medical claims, specific stop-loss, and aggregate re-insurance. Generally, the comparison with BUCHA is very positive and compelling.  In a fully insured program, these premiums are paid to an insurance company.  The premium structure is designed, with the help of actuaries, to create a profit for the insurance company.  In an ERISA-based self-funded benefits package, the employer retains “unused” premiums and can refund it to the employees, reduce next year’s premium, or use the funds however he wishes.  ObamaCare forces policies to include benefits in a one-size-fits-all manner that practically guarantees surplus premiums for the insurance company because the premiums will cover unnecessary services.  This trap can be avoided by switching to a self-funded benefits package where the employer is technically the insurer who keeps the excess premiums.  And, the employer can use stop-loss reinsurance to guarantee that his financial risk is no greater than it would be with a fully-insured BUCHA plan.