Health Insurance Company Buys Doctor Practice... A Fable

hello this is Dr Eric Bricker and thank you for watching a healthcare Z today's topic is the multi specialty practice and the insurance carrier and so today's video is a fable you I'm sure you remember like eso's fables like the boy who cried wolf well today's Fable is the multip specialty practice and the insurance carrier and in this Fable it starts out with a physician practice that sells to an insurance carrier and that physician uh practice was a multipal practice they had primary care physicians and they had OBGYN and they had gastroenterologists and they had cardiologists they had dozens of Specialties they had dozens of locations they had tons of doctors it was huge and they just happened to use a vendor which we'll call Vendor a to perform a certain service for their patients and when vendor a performed that service for their patients they charged $300 per patient per day to the The Physician practice and it worked out great The Physician practice liked it the vendor liked it and the patients liked it but when the vertically integrated insurance carrier bought the multi- specialty practice they said aha we own a vendor that does the same thing that vendor a does and we are going to replace vendor a with the vendor that we own which we'll call Vendor I now vendor I charges $800 per patient per day wait a minute why in the world would the insurance carrier replace the $300 vendor with the $800 vender aha it's because the vertically integrated insurance carrier can increase their revenue by increasing health care costs to other insurance carriers that the physician practice was billing and to Employers in the area aha but the story gets even better so this physician practice like many physician practices had what's called an earnout when they sold to the insurance carrier and an earnout is when there are future payments from the buyer I.E the insurance company to the seller I I.E The Physician practice based upon future earnings so the insurance carrier said look we're going to pay you a year two and year three and year four after the transaction based upon the financial performance based upon the profitability based upon the earnings of the physician practice so guess what happened when vendor a which only cost $300 per patient per day was rep was replaced by vendor I that cost $800 per patient per day it then decreased the earnings it decreased the profit margin of the physician practice it worsened the financial performance of The Physician practice and as a result The Physician practice had a lower earnout or in the insurance carrier point of view the insurance carrier saved money they didn't have to pay as much money to The Physician practice in the future because had decreased the financial performance of The Physician practice that they had just bought it's genius so the moral of the story in this Fable is one vertical integration allows insurance carriers to make money by increasing health care costs so anytime you hear the word vertically integrated insurance that doesn't necessarily mean that the insurance company is trying to lower costs because they've got all these vendors that they also own that make money by increasing health care cost and moral of the story number two is beware of earnout Tricks because in this case by by putting in a vendor that the insurance company made more money with it worsened the performance of the company they just bought and therefore saved them tons of money in not having to pay out as much earnout to that physician practice so there's your Fable for today thank you for watching a healthcare Z

Channel: AHealthcareZ - Healthcare Finance Explained

Views: 2,525

Keywords:

Id: 5-0aoIVmCO0

Length: 4min 44sec (284 seconds)

Published: Mon Feb 05 2024