A Financial Perspective on Healthcare
Our financial hedging strategies result in a reduction in non-cash
compensation, lowered SG&A and increased EBITDA.
Healthcare budget increases every year eat into company profits and shrink the market value of the organization. Managing healthcare as OpEx causes uncertainty, takes excessive and unnecessary risk and consistently loses money every year. When healthcare is managed as CapEx the investment can generate a measurable ROI that produces free cash flow, EBITDA and ARR every year.
When healthcare prices inside of your plan go unmanaged, costs spiral out of control and become unsustainable for your employees. When deductibles are raised, co-pays are eliminated, and programs are implemented that don’t work, your members suffer the side effects. These side effects are the hidden costs and financial burden they carry around both on and off the job.
We see corporate travel expenses scrutinized more than artificially inflated provider payment. Many insurance carriers outrageously pay claims, catch the mistake, recoup the money from the provider, then keep a part of the overpaid funds, called pay-and-chase.
Our scholarship program allows your members to receive their most expensive prescription medication with no out-of-pocket cost all the while your company experiences a 50-70% savings for the exact same medication.
There are 25+ prescription allowance plans that your Pharmacy Benefit Manager can access to reduce your overall prescription costs. Many PBM contracts are poorly written and very rarely ever read by the client. This inefficiency leads to an increase in your pharmacy spend because the PBM has kept these allowances as profit.
There are 3 layers of underwriting risk that make up your stop loss quote and renewal. Your group claims, the claims of the stop loss block and trend. You have the ability to control 2 of the 3 and doing so will drastically reduce how you hedge against high risk claims.
Chasing network discounts has lead many organizations to unknowingly focus on a moving target. The most successful organizations have installed VIP tiers that allows them to convert unknown variable costs into predictable fixed costs.
Leverage our insight to realize savings opportunities hidden inside your company’s health plan. The health insurance plan can leveraged to help reach other company initiatives; like reducing employee turnover, stimulate the recruiting efforts, increasing the 401k match, or multiplying the company’s profitability.
Misaligned financial incentives have caused insurance carriers and third party administrators to not take advantage of pricing differences in the market. This has caused your organization to unnecessarily overpay for what should be a manageable expense (your healthcare plan).
Most organizations don’t take advantage of financial hedging strategies that will allow your company to arbitrage risk of $40,000 – $1M, down to less than $5,000. This alone could be #1 cause of the negative operating leverage.
By improving the benefits, with these strategies, we can spin off of the embedded adverse selection risk and monetize the spread (for the benefit of you and your members). The outcomes produced result in increased EBITDA which can fund growth initiatives and help finance new products and new markets.
Transparency, consumerism, and shopping are always discussed in healthcare, but simply having your members know how much an MRI costs is not going to lower your healthcare spending and won’t improve outcomes. Your employees know five to ten different metrics about how healthcare works (think co-pays, deductibles, in-network, max out of pocket, etc.), and that’s fine. What’s not fine is for the people who are paid to manage the healthcare supply chain to also only know or talk about those items.
The COGS in this supply chain are hospitals, ambulatory surgical centers, prescription drugs and physicians. These COGS happen to represent 96% of your claims. So our ability to negotiate with the healthcare supply chain allows us to reduce your SG&A and increase your net profits. We call it creating EBITDA from your healthcare budget.
When we act as a partner to your organization, we are able to convert a liability on your balance sheet this year into earning next year. We focus our efforts on strategies that are accretive to the bottom line. When these actions are in effect, we can simultaneously drive employee experiences, lower prices for all parties, and increase profitability.
Organizations have taken biased advice from industry insiders that make more money as you unnecessarily overpay for healthcare. This has compressed the expectations that the C-Suite has had on how their health plan should perform. Over time this has lead executives to ignore the healthcare expense.
The insurance industry has pushed a narrative that there is nothing you can do to control health insurance claims cost. This has shifted executive focus away from the 80% of your costs (claims) and onto more easily understood things like admin fees (20% of cost). This has dissuaded the executive team from being involved.
The healthcare budget at many organizations can be tremendous but many of the traditional changes seem to only make incremental changes. Because the changes seem small, complex or unexplainable in plan terms, executives have relinquenched the duties to a non-P&L member of the organization.