Adopting a “Pure” Reference-Based Pricing Strategy

“The most effective way to address the No Surprises Act (NSA) legislation, particularly elements of the Independent Dispute Resolution (IDR) process, may be to adopt a pure RBP plan that does not contract with providers……………….”

Adopting a “Pure” Reference-Based Pricing Strategy

Reference-based pricing (RBP) provides employers and employees greater control over health care costs through price transparency. The new transparency laws are expected to increase the use of RBP strategies by plan sponsors to maximize their value in managing costs value. This approach has potential to transform employees utilization of health care services, putting the economic purchasing power and decision-making in their hands.

Even with greater price transparency, significant variations can still exist across hospitals and providers for standard procedures. Because of this, many health plans have adopted a “pure” RBP plan. Designed to moderate excessive hospital costs, pure RBP establishes a benchmark fee schedule and payment ceiling instead of negotiated fees by contracting with a provider network. Plan sponsors and participants benefit from the consistent application across all providers and health networks.

A pure RBP plan may avoid unreasonable or excessive provider charges – potentially lowering both the cost of coverage (employee and employer contributions, over time) and employee point of purchase cost sharing. Given the wide variation of provider charges for the same services, without any difference in quality, a pure RBP design offers an opportunity to reduce eligible expenses which will, in turn:

  • Immediately lower participant out-of-pocket costs
  • Lower the cost of coverage, today and in the future – lowering employer and employee contributions

The most effective way to address the No Surprises Act (NSA) legislation, particularly elements of the Independent Dispute Resolution (IDR) process, may be to adopt a pure RBP plan that does not contract with providers and should remain unaffected by NSA because there aren’t any out-of-network claims*; nor is there any determination of a median in-network rate NSA may prompt a significant expansion in the prevalence of pure RBP plans since RBP often eliminates the negative effects of excessive charges – charges that would otherwise be shared by the employer and the participant.

Some RBP payers use online software to determine the price they will pay for a health care service. RBP software methodology includes collecting data on prevailing costs for medical services from CMS’s HCRIS (Healthcare Provider Cost Reporting Information System), benchmarking it against relevant types of hospitals and settings, further calibrating by severity level, and applying a margin factor.

* On January 1, certain provisions of the NSA took full effect to protect health plan participants from excessive medical bills received from out-of-network providers – including services for emergency care and care by out-of-network providers providing services at in-network facilities. The NSA does not apply to all out-of-network medical bills.

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