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Beyond Network Discounts

We all love to get a great discount on our purchases— who can resist ads that tout a sales price at 50% off?  But when it comes to evaluating the price for a healthcare service, does a higher discount equal greater savings?

Imagine you need surgery, and you have your choice of two doctors in Metropolis USA:

  • Dr. Luthor is required under his network agreement to provide a 50% discount.
  • Dr. Kent is required under his network agreement to provide only a 40% discount.

You might be tempted to go to Dr. Luthor for your surgery. After all, he has a higher discount! But hold on for a moment because there’s one other thing you need to know. It turns out that:

  • Dr. Luthor bills $10,000 for your surgery
  • Dr. Kent bills $5,000 for your surgery

Remember – you don’t pay discounts, you pay dollars. So let’s see how much each doctor would really cost:

  • For Dr. Luthor, $10,000 less the 50% discount makes the total cost for surgery $5,000
  • For Dr. Kent, $5,000 less the 40% discount makes the total cost $3,000

If we only looked at discount, we would have ended up paying $2,000 more!

The best way to determine the value that any vendor or network arrangement brings to your client is on the basis of net cost. It is very tempting to stop at discount because it is a quick and easy comparison. But as we saw above, it can be a very expensive shortcut. If you truly want to lower costs, you need to look beyond discounts.

Posted on September 20, 2017 in Cost & Risk Management

Tagged as network discounts