Broker Check

What's New in Controlling Health Insurance Costs? Reference Based Pricing. (Part 2 of 2)

| June 13, 2018

For those companies who meet the “three S’s” (See Part 1), Referenced Based Pricing (RBP) promises immediate hospital/facility claims savings.  I see estimates from vendors of between 20% and 50%.  Overall annualized self-insured plan savings, some pricing transparency and trend stabilization.

Here are my tips if you are thinking about an RBP model:

  • Pick your fights: Choose low frequency, high cost procedures that can have an impact on your particular population.  If your company consists of 90% millennials, selecting hip replacement surgery as a RBP procedure is not going to show much results.  
  • Be reasonable in your expectations: Medicare as a pricing reference is a standard resource but the pricing discount you can expect will be a percentage above Medicare.   For example: A hip replacement on Medicare’s allowable amount might be $50,000.  If the hospital’s retail amount is $180,000, the fastest way to end good will and negotiations is to expect the hospital to accept the Medicare allowable charge.  Your RBP partners should set reasonable exceptions, something like 150% of Medicare (or something they have been successful with in past experiences).  In this example that could be $75,000 – saving you the customer $105,000.   Remember, there are NO contracts, NO guarantee of savings.
  • Know your RBP administrator, their success rate and resources available to you. Many will have legal resources available as part of the relationship. Also understand how they get paid. They can take payment in a number of ways for their services; the most popular are percentage of savings vs. per employee per month, or a combination of both. 
  • Make a commitment. With RBP, you are all in or all out!  Don’t go down this road and not fully understand every aspect of it.   Failure to know what you are getting into can have an adverse effect in many ways including employee morale, recruitment and retention.
  • Understand and plan for your worst case scenario(s). Don’t be an alarmist but to paraphrase Louis Pasteur, “chance favors the prepared.”  Choose your advisor, administrator and legal counsel with great care. Each should bring an understanding of how to make RBP a successful model.  You should never be evaluating trusted advisors during your renewal, there are just too many things to consider and make a change to a new product design or philosophy.  Recruit your team before the game starts.
  • Involve and educate, your employees. In general, this never hurts your cause whether you choose to go down the path to a RBP model or not.  Employees are in this as well.  Explain to them what RBP is and why your company has chosen to embrace it, don’t scare them but explain to them that they can help contain costs by taking their time and think about the financial implications of their medical decisions.  Teach them what medical procedures will be affected and what they should do when asked certain questions at admissions, discharge and when/if a bill(s) comes. Medicine is one of the only products in America that a person purchases with no real knowledge or visibility into what the final costs are.  Since we are dealing with high value procedures a simple letter to members explaining RBP at open enrollment will not be sufficient.  A strategy to remind and reinforce throughout the benefits year is the only way to avoid mistakes early in the procedure process. 
  • Discuss RBP with your legal counsel. Alert them that you are going down this path.  If a balance bill were to be generated, you don’t want to be taking the time to brief your attorney on the background of RBP, who your administrator is and what resources are available.

Future trends that will effect RBP:

  1. State and Federal regulation of not just the RBP model, but also medical insurance, hospitals and even personal finance.
  2.  Consolidation of hospital systems (less hospitals, less choice; could translate into better collection methods and a lower likelihood to accept discounts)
  3.  Adoption of the model by large national employers and/or health insurance carriers for out of network claims adjudication.

Reference Based Pricing is different and different can be good or bad.  What we do believe is that choice is good.  RBP offers some a new dimension to help with insurance costs.  

It all starts with choosing the right advisor.  We hope that the next time you review your retirement and/or benefits plans you will include Tycor.  Since 1980 we have been helping our clients “Live Well and Retire Comfortably”.