New Reference-Based Pricing Programs: Buyer Beware
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There’s some new buzz around reference-based pricing (RPB) – a concept employers have found intriguing, but relatively few have tried. A new model has some employers taking a second look.
As originally conceived, a health plan sets a reference-based price for specific procedures. Employees are made aware of these reference prices and are held responsible for the balance of the cost if they select providers charging more. The new model pegs reimbursement rates for facility claims at a percent of the Medicare rate (typically 140% -160%). If the facility accepts this maximum reimbursement level as the full payment due, things go well for the plan sponsor and the employee. Some facilities, however, may attempt to collect the full charge by balance billing the employee. RBP vendors administering these plans often provide employees with assistance to challenge the balance bill, with mixed success.
If you’re thinking about this new RBP model, you must first get comfortable with the risk of increased balance billing to your employees. RBP programs represent a zero sum game, in that savings to employers have to come from somewhere, in this case either the hospital or the employee (through balanced billing). Employers can try and scope the magnitude of such events, based on the experiences of the TPA and their existing clients.
If you’re comfortable with the balance billing frequency, process support and employee liability, you still should evaluate the financial savings from the RBP model (which is generally focused on facility claims only) against your current carrier or TPA solution. Unfortunately, the savings evaluation process is complicated. While there could be meaningful savings achieved for hospital claims coming to a clear conclusion is difficult because carriers and RBP vendors use different discount methodologies and misleading stats abound. Also, one must estimate the impact of physician claims, Rx claims, and other costs that will occur as a result of shifting to the RBP TPA. We believe it is critical to have an independent actuarial assessment to cut through the hype and provide a realistic savings projection. If savings are meaningful and risks tolerable, the RBP model provides an interesting option to traditional carrier models.