Cost Plus / Reference Based Pricing Gains 10% Market Share

October 7, 2014 – 10:41 am ET

PHOENIX — Reference-based pricing could trigger balance-billing by providers if employers do not implement this cost-containment tool carefully, experts warn.Employers that later attempt to resolve balance-billing disputes by renegotiating provider payments also could face issues obtaining reimbursement from their stop-loss insurers, the experts say.Reference-based pricing is an increasingly popular strategy whereby employers limit the amount they will pay for certain medical services that have wide price variations. But the practice can run the risk of leading providers to balance-bill plan participants for the unpaid remainder of higher fees, experts caution.“The only way to stop balance-billing is with a contract,” said Ron Peck, senior vice president and general counsel at Braintree, Massachusetts-based The Phia Group L.L.C., during a panel discussion on reference-based pricing held Monday during the Self-Insurance Institute of America’s 34th annual National Educational Conference & Expo in Phoenix. While just 10% of U.S. employers have adopted reference-based pricing, 68% plan to do so in the near future, according to a recent survey by the Society for Human Resource Management.Reference-based pricing has been gaining attention as a cost-containment strategy as the result of the highly publicized success of its use by two large self-insured employers, said attorney Nicole Guerin, who works at Princeton, New Jersey-based Axis Accident & Health and also spoke during the SIIA session.Oakland, California-based Safeway Stores Inc. saved $700,000 in 2008, the first year it used reference-based pricing to curb prescription drug costs, she said. The grocery store chain saved another $2.7 million in 2009 when it expanded its reference-based pricing program to also include labs and certain common diagnostic procedures, such as colonoscopies.The California Public Employees’ Retirement System targeted joint replacements with its reference-based pricing strategy, shaving $2.6 million off its 2011 plan costs and another $5.5 million in 2012, Ms. Guerin said.“Reference-based pricing works well for high-frequency and primarily routine or scheduled services,” she said.“The critical factor is that it’s based on some framework established by a third party to the health plan provider. We’ve seen lots of variation of reference-based pricing over the last 10 years. Some entities are using independent studies. They’re gathering actual billed data and CPT (current procedural terminology) codes and other factors to calculate their fees. You can use Medicare or the (Centers for Medicare and Medicaid Services) database. You can use a commercial database. There are different references for different services,” Ms. Guerin said.Potential pitfalls While reference-based pricing has been successful in keeping employers’ health care costs in check, it does have a “down side,” according to Mr. Peck.“The stronger the plan and the stronger the plan’s position, the more likely that balance-billing will occur,” he warned. “Is balance-billing illegal? The answer is yes, if they’re breaching the contract that says they can’t balance-bill. Absence a contract, yes, they can balance-bill.”Mr. Peck added that stop-loss insurers may balk at paying more than the reference-based price for services that pierce the specific stop-loss layer if an employer negotiates a higher reimbursement to prevent the balance-billing of a plan member.“If this plan wants to avoid that balance-billing and is prepared to negotiate with the provider and pay something additional, are they now paying more than the plan document allows?” Mr. Peck queried. “Or let’s say you have a stop-loss policy and there’s an expiration date on how long you have to get that claim paid, and let’s stay you expect there to be pushback from the provider, and you expect there are going to be situations where additional evidence will have to be submitted and you’re going to have to renegotiate to prevent the balance-billing — do you have time to negotiate that claim? Do you have time to pay something additional and still submit it for reimbursement?”To avoid such pitfalls, Ms. Guerin recommends that employers amend their benefit plan documents and definitions to identify the referenced basis for reimbursements and to specify the maximum amount that the plan will pay for certain specified medical services. “Say what you’re doing, and do what your plan says, otherwise you’ll find yourself in hot water,” she warned. “It is also very important that the providers understand how they’re being reimbursed, because that will decrease the amount of calls and appeals that you’ll get.”The session was moderated by Cori Cook, founder and CEO of Billings, Montana-based CMC Consulting L.L.C.

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