17-minute read
Health care affordability remains a monumental hurdle, presenting a daunting fiscal challenge for consumers, employers, and public budgets alike.
The good news is that, after more than 20 years in the industry, reference-based pricing (RBP) has emerged as one of the most compelling solutions to this challenge.
RBP sets a maximum limit or "reference price" buyers are willing to pay for health care services. RBP ties the claim payment to a formula that results in the employer paying from 140% to 150% of Medicare.
Opaque pricing shrouds the health care sector. The actual costs of services have historically remained elusive for both patients and payers, often only disclosed post-provision. This murkiness precipitates pricing inconsistencies, engenders inefficiencies, and cultivates an environment ripe for bloated costs and rampant fraud.
Reference-based pricing strikes back as a transparent, market-oriented solution to determine fair prices for health care services. It offers a clear, objective standard that sidesteps the often inexplicable vagaries of health care pricing.
RBP has seen steady growth among those seeking to manage spiraling health care costs and promote unambiguous, transparent pricing. Departing from the conventional provider-centric model, RBP puts consumers at the helm, fostering price transparency and championing value-driven health care consumption.
The result? RBP programs regularly save employers and employees between 20% to 40% in their first year.
With all this in mind, here is what I'm calling my 10 commandments of any reference-based pricing plan. Every one of these is important, however, they are ranked from 10 to one, with one being the most important element.
10: A robust and dedicated HR team
Initiating an RBP strategy demands a formidable commitment from a company's HR department. During the maiden year, the workload is likely to surge by roughly a quarter, as communication requirements expand and inquiries flood in. Within the initial six-month phase, HR could be grappling with a workload increase of approximately 50%. This is not to be taken lightly. In reality, even more modest plans are projected to yield as much as $500,000 in savings in the first year alone. Given the immense potential rewards, I invariably advise the organization's top brass — the CEO and CFO — to invest in additional HR personnel to usher in the program and cultivate their expertise in RBP.
While the broker, TPA, and reference-based repricer will lend their support, nothing quite matches the reassurance of having an in-house resource accessible round the clock to smooth out the transitional bumps.
It's also crucial for CEOs and CFOs to understand that the HR department will seldom be the driving force behind the decision to adopt RBP. From HR's perspective, RBP presents a Pandora's box of potential risk, additional work, and administrative pain. Therefore, the initiative to transition to RBP must emanate from the finance department or chief executive. As they consider such a decision, I strongly encourage them to acknowledge the heightened demands they will be placing on their HR team and to plan accordingly by boosting staff numbers in anticipation of the substantial savings on the horizon.
9: A robust stop-loss contract
Even with an RBP plan in place, the employer, broker, and repricer must maintain the latitude to negotiate payments exceeding 150% of Medicare, should the situation warrant it. Occasionally, in pursuit of the right specialists or to settle an outstanding emergency claim, an employer may opt to pay up to or beyond 300% of Medicare. When this happens, it's critical to ensure that this contingency is addressed via a stop-loss agreement. The cream of the crop among stop-loss providers will be accommodating enough to negotiate up to 200%, or even 300%, of Medicare and still cover that amount, despite the original agreement to settle claims at 140% or 150% of Medicare.
Moreover, I suggest you procure a full year of runout protection on the stop-loss contract when stepping into the RBP realm. While a three- to six-month period might suffice when dealing with traditional PPO networks, the same is unlikely to hold true in the context of RBP. Regardless of the diligence from the employer, employees, and insurance team, a medical facility could surface well into the future, demanding additional payment on a claim they perceive as outstanding, or, more probably, underpaid. In such instances, the additional runout protection will be a safety net for which you'll be deeply grateful.
8: A trailblazing CEO or CFO
RBP is typically not for the cautious or those who yearn for the comfort of the status quo. Though its adoption has seen a significant uptick over the past five years, the success of RBP hinges on a leadership team that is primed, eager, and equipped to challenge the might of colossal insurance behemoths.
7: Masters of communication
RBP is not a strategy that can be hastily cobbled together a month prior to open enrollment. It requires an intensive communication campaign spanning 75 to 90 days. Companies must seek out a broker and repricer who are prepared and capable of reaching employees through diverse channels — email, apps, webinars, recorded presentations, and even traditional payroll stuffers if necessary. Employees must be guided on the nuances differentiating an explanation of benefits, a bill, and a balance bill. They must understand that at the first hint of resistance from a health care provider or a front desk representative, they must direct the person to the dedicated 800-number on their medical card.
The organization's CEO should pen a letter and make an appearance, either in person or via a recorded message, to explain to employees that the introduction of this new medical program will usher in savings of 20% to 40% — translating into a boosted total compensation. Employees must have the foresight to appreciate that this is a strategic move, carefully crafted and executed for their benefit.
This communication stream should continue unabated on a regular basis for the initial six months of the plan year. The communication would serve as a gentle reminder for employees to reach out to their TPA or concierge service whenever they have a question on a bill or encounter resistance from a medical facility or provider.
6: The lionhearted broker
In the domain of employee benefits packages, RBP represents the apex of sophistication. It demands a benefits advisor who is deeply entrenched in the world of stop-loss contracts, TPAs, and the intricate workings of reference-based pricing. If the current brokerage framework operates with a sales division and an account executive who assumes the majority of post-sale responsibilities, it's paramount that the account executive also boasts a comprehensive knowledge of the RBP landscape. A brokerage team most familiar with the installation of an HMO or PPO who then resorts to autopilot will fail in this endeavor. Every phase and aspect of the RBP platform must be managed by the agent.
5: The ideal TPA
The job of a TPA is anything but cushy. With slim margins to play with and a rather high turnover rate, TPAs certainly have their work cut out for them.
Look for a TPA that specializes in RBP. While many may assure you that they can collaborate with any of the RBP repricers out there, consider this a red flag. The cream of the crop of TPAs will likely foster two or three RBP partnerships and manage these collaborations adeptly.
During a recent encounter with a TPA, they shared that they work with three RBP vendors and mandate a weekly meeting for at least the first six months of the plan year to proactively resolve open issues. Both the broker and the client receive invitations to these calls but aren't obliged to attend. This level of service is the hallmark of an exemplary TPA.
One factor to be mindful of is the importance of prioritizing long-term service commitment and stability. When a commitment to dedicated service and longevity is in place, the focus is on improving the organization's capacity for sustained operations. This typically involves increasing staff numbers, strengthening customer support, and making sustained investments in technology. Such a focus can often be found in organizations that are prepared to endure short-term costs for the purpose of long-term growth, including investments in enhancing staff competence and fortifying employee training. This strategy is key to ensuring the smooth execution of your RBP program.
4: Perfect repricing partner
The RBP vendor landscape is witnessing a veritable bloom, with new players sprouting up at a remarkable pace. Currently, several vendors can claim as many as 150 clients. However, these vendors are far from homogenous; significant variations characterize the industry. While a comprehensive analysis of these differences could serve as the basis for an article in its own right, here are some factors to weigh closely:
- Does the vendor offer to become a co-fiduciary on the plan in tandem with the employer?
- Do they integrate legal support within their offering for both the employer and the employee?
- How robust is their credit restoration program, particularly in instances where an employee neglects to engage early, and their credit rating takes a hit?
- Do they employ in-house legal counsel, or do they rely exclusively on external legal advice—and more importantly, does this distinction matter to you?
- Do they suggest enlisting an independent concierge service, or do they insist that this is their responsibility?
- How large is their customer service team?
- Would you favor a firm that settles more claims at a higher cost to you, resulting in less backlash from providers and employees? Or would you prefer a company that staunchly defends your pricing decisions to curb costs and counteract unjust price escalations?
- Do they offer performance and pricing guarantees, and what are the specifics of these assurances?
- Do they possess or have access to a physician-only network that can be incorporated into your RBP program, if desired?
- How many clients do they serve in the geographical area where you intend to implement their services? This can shed light on their familiarity with local facilities.
3: Legal support
The legal landscape in the world of RBP is diverse. Some RBP vendors claim to have never gone to court because they've been able to settle every dispute that has arisen. Conversely, one vendor told me they are engaged in 23 lawsuits nationally with their legal team. You have a full spectrum of options.
Some vendors will argue against becoming a co-fiduciary on the plan, asserting that this position allows them to push harder for concessions and, should a court case arise, shift the responsibility solely to the patient, leaving no deep pockets for the hospital to raid.
Conversely, other companies highlight their robust in-house legal team and established law firms on retainer, armed and ready to fight for you and your plan members when a hospital behaves unjustly. These vendors will swiftly respond to a balance bill with a letter, making it clear that any disputes should be directed to the plan, not the member.
Your preference for a particular approach will hinge on your risk tolerance, potential employee backlash, and your readiness to challenge the inflated charges from facilities treating your plan members.
2: Balance bill support
While all RBP vendors aid members receiving balance bills, your responsibility is to identify the ones that excel at this task and can cater effectively to the specific employee group. Analogous to your search for a TPA, the size of the customer support team and their expertise are pivotal.
1: Consider implications to provider access
Although legal and billing complications initially overwhelm those new to RBP, they are ultimately resolved successfully. When faced with potential legal proceedings, hospital CFOs are deeply hesitant to defend their excessively high charges in comparison to Medicare rates. Almost all RBP disputes reach a settlement before escalating to court proceedings. This is largely due to hospitals recognizing the impracticality of arguing that 400% of Medicare is a "reasonable" rate, especially when their largest client pays only a quarter of that amount.
The most prominent obstacle in RBP is access. Nationally, most RBP vendors boast an acceptance rate of 90% or above. This means roughly 10% of the time employees may encounter resistance from a doctor's office or hospital. In about half to three-quarters of these cases, a peaceful negotiation process settles the matter. This leaves about 2% to 5% of cases where an access issue persists.
While 5% might seem insignificant, it equates to 20 people in a company of 400 who may no longer have full coverage at their preferred doctor or facility. Importantly, this doesn't signify a lack of access altogether. It means that if the plan member insists on visiting a provider within the top 10% of the most expensive providers in their area, they may need to bear a higher cost for that choice. HR teams dread handling complaints from disgruntled enrollees unhappy about restricted access to their family doctor. These situations can arise and being prepared for them is essential.
In remote areas where there may be a genuine lack of available doctors, the TPA, broker, and RBP repricer should collaborate to increase the reimbursement to the provider or facility to ensure convenient access. This scenario is not uncommon, but resolving it requires time and concerted effort.
Reference-based pricing presents an appealing alternative to traditional health care pricing strategies, championing transparency, consumer empowerment, competition, and sustainable health care costs. Advocacy for RBP is aligned with a vision of a responsive health care system that caters to users' needs, offering hope for a more equitable future for American health care. As RBP gains momentum, its full potential and long-term impact on American health care costs deserve comprehensive study, research, and widespread implementation.
Craig Gottwals is a health care attorney and benefits advisor at The Mahoney Group, one of the largest independent insurance and employee benefits brokerages in the U.S. For more information, visit our website or call 877-440-3304.
This article is not intended to be exhaustive, nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.