ELAP tells employers to pay hospitals a cost-based price, not the billed charge

NPR reported in 2015 on ELAP Services, a small Pennsylvania benefits consultant that launched a service in 2007 for mid-sized self-funded employers: when a hospital invoice looks unrelated to cost, don't pay it. ELAP instead estimates the cost of the treatment from the hospital's own financial reports filed with Medicare, adds a cushion so the hospital makes a modest profit, and tells the employer to pay that amount.

The mechanism is contractual. Under ELAP's main model neither the employer nor its claims administrator signs contracts with hospitals; the employer's plan documents spell out how workers' hospital bills are reimbursed, which ELAP has argued in court gives the method legal weight. There is no network, so employees can use almost any facility. ELAP handles all hospital bills and defends workers from collections for a percentage fee tied to total hospital charges.

Texas dealership group Huffines, covering 300 employees, tried it on a three-day back-surgery stay billed at $600,000. Its previous administrator promised network discounts that would still leave about $300,000. ELAP's analysis led to a check for $28,900, and the CFO says the hospital never contacted them again.

Hospital list prices had risen nearly three times as fast as inflation, and HMOs and accountable care organizations had little effect.

Anchoring to the hospital's own Medicare cost reports gives the employer a defensible, hospital-sourced number.

Because there is no network contract, nothing obliges the employer to pay the billed charge.

Hospitals mostly accept the payment, according to ELAP's CEO, and the vendor's legal backup handles the exceptions.

When a price list is arbitrary, anchor payment to the seller's own cost data and pre-commit to defend the buyer.

ELAP said more than 200 employers covering about 115,000 workers and dependents had hired it. Huffines said what the company and its workers paid for health costs stayed unchanged for six years; a Kansas distributor's CFO said ELAP cut its health costs by about one quarter. A federal district judge in Georgia ruled for ELAP and its furniture-chain client in 2012. Risks remain: about one in five hospital-using workers at that distributor got balance-billed, which can take months to resolve. Cost figures are self-reported by the clients.