Reference Based Pricing

Among the strategies being deployed by benefits brokers/consultants, on behalf of employers feeling squeezed by ever increasing health insurance costs is REFERENCE – BASED PRICING (RBP).  Variances in the price of healthcare can be as much (or even more) as 500% for the same services…with little to no difference in quality.  Don’t believe me?  See for yourself using – Healthcare Bluebook!
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I used the tool to discover the variance in cost for an MRI in my adopted hometown of Omaha, NE, to be 10-fold!  On the low end – $501…on the high end…$5,048!  (Note: I know of a facility in town that will do an MRI for as low as $350).

Rather than rely on a Preferred Provider Organizations (PPO) or Health Maintenance Organizations (HMO) contracted rate of reimbursement (or fee schedule), some self funded employers are setting their fee schedules for certain care based on a much lower price point…and one that is defensible.  There are many upsides to RBP, including:

  • freedom of provider choice for insured members
  • transparency of true healthcare costs for insured members
  • significantly lower claims costs for employers
  • claim advocacy for members that are balance billed by their provider

RBP operates off the premise that healthcare providers shouldn’t charge different patients (or customers) different prices for the exact same service or set of services, based solely on how the patient pays the bill (e.g., cash pay, private insurance, government coverage like Medicare, Medicaid, Tricare, etc.).  So an example of a typical RBP model might set reimbursement rates for care at some defined percentage of the Medicare reimbursement rate.

One example I’ve seen uses 150% of Medicare reimbursement rates for physician care; and 175% for facility services.  Such a relatively lower, RBP reimbursement schedule, compared against a PPO or HMO negotiated rate could be 75% less, or more!  The savings could be considerable to an employer, and again, covered employees and their dependents would have complete freedom of choice of provider, without the limits of a network.  But there is a drawback, which can be dicey to say the least.  If a provider refuses to accept the RBP rate of reimbursement, and balance bills the patient, a dispute emerges.  Fortunately there are vendors that can mediate, negotiate, and ameliorate on behalf of the patient, to reach an agreed upon reimbursement amount.  If an agreement can not be reached, litigation can ensue.

IMPORTANT: The first known RBP lawsuit has emerged, and is currently pending in a Virginia circuit court, after having been remanded back down from the state’s supreme court.  A decision  could define the future of RBP (see Glenn Dennis vs. Memorial Hospital of Martinsville & Henry County).  The crux of the dispute lies in the difference between what the hospital charged for services provided to Mr. Dennis – $111,115 – and the amount Mr. Dennis’ employer’s self funded plan allowed for said services – $27,254, a 300% difference!

Stay tuned…or rather…we will…and will let our readers and clients know the outcome!