Reference Based Pricing Blitzkreig

“For-profit hospitals charge 700% more than Medicare prices, while non-profit hospitals charge 550% more. Traditional PPO plans offering a 50% discount may end up paying 300% more than the Medicare price”.  In Texas where Reference Based Pricing strategies have been around since 2007, plan sponsors are paying between 120% to 150% of Medicare…………………….The Reference Based Pricing Blitzkreig is gaining market share quickly……………

Should employers proceed with reference-based pricing?

By Kayla Webster

Published May 03 2019

WASHINGTON — A big problem in the healthcare industry is that most employees aren’t aware of the prices of certain medical services until they receive the bill.

But reference-based pricing can take aim at that problem head on — if done right, benefits experts said this week during the World Health Care Congress.

“There’s no cost transparency in our current healthcare system,” said Marty Joseph, president of HealthComp Holdings, a Fresno, California-based healthcare administration company. “Reference-based pricing is the solution because it uses Medicare as a basepoint, rather than a PPO discount.”

Some employers have been exploring the model as a way to combat rising healthcare costs while also increasing cost transparency. The method typically does not involve a traditional insurance carrier or provider network negotiating covered services for the plan. Instead, employers set a fixed limit on the amount a plan will pay for certain health services. This can help plan sponsors cut costs by capping what the plan covers for some medical procedures where fees can vary widely.

See also: The case for self-funded health benefit plans and reference-based pricing

Joseph said  paysfor-profit hospitals charge 700% more than Medicare prices, while non-profit hospitals charge 550% more. Traditional PPO plans offering a 50% discount may end up paying 300% more than the Medicare price. By contrast, RBP Medicare prices, plus an extra percentage, for medical services. Joseph estimates RBP saves companies 20%-30% more than PPOs.

“We’re still going to pay the provider a reasonable amount,” said Joseph, who works with brokers to help employers implement and manage this healthcare model, which is a variation of self-insured coverage. “And unlike the traditional PPO arrangement, there is no network of providers — [employees] can go anywhere they want for care.”

Matthew Lund, CEO and president of Fortune Management, a Seattle-based insurance company, said during the conference that it’s rare for medical providers to turn away RBP plans — but it can happen.

A few years ago, a Reno-based employer that adopted an RBP plan from Lund’s company called him to complain that one of the largest medical providers in the city refused to accept the RBP plan, he said. Lund’s company tried to work with the provider to find a solution, but after looking at their costs and treatment ratings, decided it was actually better to avoid this provider.

“We showed [the employer] that this large provider group had the highest costs in the area and the worst outcomes — other smaller providers in area had better prices and outcomes,” Lund said. “It was an opportunity to educate our clients that a bigger name doesn’t mean it’s the best choice.”

Although Joseph claimed employers reap savings, and workers avoid high-deductibles, through RBPs, the plan does have drawbacks for some employers. Chief among them, it requires constant vigilance in order to work efficiently. Sometimes after using medical services, employees on RBP plans receive bills for out-of-pocket expenses.

Joseph says these notices are mistakes by the medical provider; employees shouldn’t have any unbalanced bills on RBP plans. But if an employee ignores these erroneous notices, the medical provider could send them to a collection agency. But all it takes to avoid this situation is a phone call with the RBP provider, Joseph said.

For many employees, benefits enrollment can be tedious—sometimes even scary. They don’t want to make a mistake—and who can blame them?

“Collectors will call, it happens. But it’s not a reason to not consider an RBP,” Joseph said.

For this reason, employers who use an RBP model must be willing to provide a substantial amount of ongoing employee education and personal support.

“Lack of communication is the most common reason for RBP failure. Employees have to be educated to make a phone call when they need to, and we’ll take care of it.”