With health care costs growing more than two times the rate of inflation consistently over the years, and employers growing weary of increasing deductibles and cost shares, an old idea has resurfaced for employers: Referenced Based Pricing (RBP) programs. Under Obamacare, the transparency of costs among providers has become more commonplace, thereby enabling these types of programs.
These programs are fairly simple to understand. An employer health plan determines a reference-based price for specific procedures that may have a variety of costs by different providers in the area. For example, in Detroit, a preventive primary care visit on average costs $141 per CastlightHealth.com with a range of $85 to $263 depending on the provider. Or in Grand Rapids the same visit averages $152 with a range of $90 to $258. Or go a little south to Toledo, and the average price is $136 with a range from $99 to $222.
Since healthcare costs for the same event or procedure have wide ranges, employees are made aware of these reference prices and are responsible for the balance of the cost if they select providers charging more. To determine the reference-based price, generally most models use reimbursement rates that are a percent of the Medicare rate (typically 140% -160%). Employer costs are capped, and the employee will be subject to any cost overages from the reference price. As such, it becomes the employees’ decision as to who to use and how much they are willing to pay. Furthermore, the Obama administration ruled that these plans do not violate the Affordable Care Act’s cap on patients’ annual out-of-pocket costs. It is unlikely the Trump administration would rule that it does.
The biggest benefit for employers is that these programs cap the cost of healthcare and over time produce significant savings for employers.
The major drawback to these plans is the balance billing component. When an employee uses a procedure and the RBP is covered, the employee has to cover the remaining, which is generally not discounted, but at full price. This situation is called “balanced billing.” With that issue in mind, employees with chronic illnesses will exhaust deductibles. A strategy to overcome this issue and contain these costs is to implement narrow networks. Employers will focus on having facility providers as opposed to network providers. For example, an RBP could be restricted to doctors and services at Henry Ford Health System or McLaren Health System.
Hospitals rarely practice balance billing when referenced-based pricing does not cover the total procedural cost for two reasons. First, charging a patient for services after receiving some payment can become a public relations debacle. Second, the parties – the provider, the self-insured’s third-party administrator (TPA), and the patient – typically resolve billing issues via negotiations.
Therefore, for employers to go down the path of RBPs, as Liz Mann of Integro Group points out, they need to:
- Be very careful to set a reference price that would be accepted by a reasonable number of quality providers in the geographic region
- Work with TPAs to conduct a network disruption analysis to determine whether a significant number of plan participants have historically used providers who would charge significantly more than the planned reference price
- Ensure that the reference price remains one that is accepted by an adequate number of quality providers in the area by working with their TPAs or other consultants to continually monitor the market conditions in the geographic area
- Foster greater provider choice while protecting the plan from the excess costs associated with participants who chose more expensive providers
- Communicate changes in the reference price and update the list of providers willing to accept the reference price
- Have a communication plan for employees to understand the ins and outs of these programs, because implemented wrongly, this approach could be a major reason for attrition, and conversely a barrier to attraction, especially in a low unemployment market.
Eventually something is going to give in healthcare. With costs rising greater than inflation, employers are caught in a trap. RBPs may be one alternative to control costs, but it will likely need to be tweaked to ensure employee costs are minimized.
Source: Mercer 10/18, BenefitsPro 2/12/18, Your RoadMap to Healthcare Reform 4/13/18, SHRM 7/28/14