Purveyors of Reference Based Pricing strategies can’t seem to agree on what the reference benchmark should be. Thirteen years ago J. Patrick Rooney (1927-2008) said it was 125% of Medicare. Was he right?
Reference Based Pricing strategies are gaining market traction, growing exponentially. Purveyors, of which there are many now, can’t seem to agree on what the Medicare benchmark should be.
“It should be 150%!” says one. Another says “It should be no more than 120% of Medicare!” The state of Montana says it needs to be 239% of Medicare while North Carolina says the sweet spot is 170%. The federal government, through Medicare, believes the number should be 100% while many state Medicaid plans use a much lower benchmark.
J. Patrick Rooney, someone you probably have never heard of, is considered by many to be the Father of Margin Based Pricing better known these days as Reference Based Pricing. Many believe his conclusion of what the “sweet spot” reference point should be still holds true today.
“In October 2006, Mr. Rooney was the subject of a NUVO Dispatch titled “Defending the Uninsured.” [10] which reported “Rooney has found that hospitals have made a common practice of charging 3.5 times what Medicare will pay for services.”
“While Rooney acknowledges that hospitals may need to charge more than Medicare will pay, he contends that authoritative research shows that Medicare plus 25 percent is the reasonable amount for hospitals to charge….” – Wikipedia
America’s Health Care Crisis Solved by J.P. Rooney & Dan Perrin provides additional commentary in the link below, representing that Margin Based Pricing of Medicare +20% is reasonable and defensible:
In Texas many Reference Based Pricing plans use 120% of Medicare and have been doing so since 2007. Most hospitals continue to accept patients at that payment level and cash benefit checks. Balance billing is less than 2% of claims, a manageable number comparable to PPO plans.
Whereas Texas hospitals were unwilling to negotiate reasonable direct contracts with plan sponsors as little as five years ago, we are now seeing a change in attitude among the ivory tower elite commonly found within hospital systems. They watch the market closely and see that the trend towards Reference Based Pricing is growing and is not going away. They know the closely held secrets behind managed care agreements is secret no more. Plan sponsors are becoming more involved than ever before towards understanding health care pricing and they don’t like what they see.
Armed with knowledge they never had before, these plan sponsors can now negotiate from a position of strength based on truth, transparency and common sense. The magic number many have found in direct contracting is 150% of Medicare. And, that’s lower than what many plans pay at 120% of Medicare.
Wait, say that again please! What do you mean that 150% of Medicare is less than 120% of Medicare? What have you been smoking this morning!
Well, it’s true when you consider the fees some third party intermediaries charge their clients. Although 120% of Medicare may sound good, by the time you add in the fees charged to administer the scheme the bench mark equivalent ends up being closer to 200% of Medicare. The problem with that of course is that the provider misses out on 40% of the benefit.
So what is the magic number? Madame Palm down on 14th street in Brownsville, Texas may have the answer for you.
