Consumers are looking to increase transparency in the healthcare system and get a handle on unknown charges for services. Meanwhile, employers are looking for creative ways to provide competitive, attractive benefits to recruit and retain top talent. Some self-insured employers have decided to initiate more control over the cost for healthcare services by switching to reference-based pricing (RBP) model for employees.
RBP is a cost-containment strategy that pays doctors, labs, clinics, and hospitals a percentage of an established benchmark. Most often, the reimbursement rate is 120 percent to 240 percent of Medicare pricing for a given service, “based on what’s reasonable in terms of the local health care market,” said Marty Joseph, president of Chicago-based BAS Benefits Administrative Systems LLC, a third-party administrator (TPA) of self-funded plans.2
A May 2019 report by the RAND Corporation, discovered prices paid to hospitals by private health plans averaged 241 percent of what Medicare would have paid. This percentage had a wide variation in prices among states and within hospital systems, prices varied nearly threefold, ranging from 150 percent of Medicare rates at the low end to 350 to 400-plus percent at the high end.3
RBP can reduce an employers’ healthcare spend by up to 30% and typically has out-of-network payment tiers so members can go where they choose for care. RBP leads to more-predictable claim costs because of pre-negotiated contracts with physician practices and hospitals. Even if no contract exists doctors and facilities will still be paid RBP rates. In less than 4% of claims providers may “balance bill” the patient for what the provider considers the remainder of its fee. This same thing happens with bigger insurers when those surprise amounts due laid in your mailbox. In the case of the RBP balance bill, “patients can contact the plan TPA, who will intercede with the provider,” Joseph said. Most often, the provider ends up accepting the RBP amount as payment in full, he noted.2
The State of Montana switched its employee plan to a RBP model back in 2016 limiting the prices paid at hospitals in the state. Under the state new agreements, outpatient services are paid between 230¬–250% of Medicare rates and inpatient services are paid between 220–225% of Medicare rates. The previous range in prices were between 239–611% and 191–322% for outpatient and inpatient care. Initial evidence suggests that reference-based pricing saved Montana an estimated $47.8 million in inpatient and outpatient spending from 2017 to 2019.4
With the money employers save switching to RBP plans many pass this savings onto their employees with lower premiums and deductibles. We also see many employers implement a PBM or other discount prescription drug plans with more robust formularies to lower prescription drug costs for their employees at the same time increasing savings and quality of care.
At Premier Workforce Solutions when we assist a client to switching to an RBP plan we also offer implementation support to help with employee communications and training to ease the transition for employees. Our team of dedicated professionals can also help identify ancillary benefits and creative ways for your group to utilize the cost savings found with implementing RBP that can increase retention and recruitment.
3- https://www.rand.org/pubs/research_reports/RR3033.html
4- Steve Schramm and Zachary Aters, Estimating the Impact of Reference-Based Hospital Pricing in the Montana State Employee Plan, (Scottsdale, AZ: Optumas, April 6, 2021), https://www.nashp.org/wp-content/uploads/2021/04/MT-Eval-Analysis-Final-4-2-2021.pdf