Tag Archives: reference based pricing

Benefit Advisers Must Actually Advise

Sales is the name of the game, no matter the industry, but some professions should focus more on providing sound advice and less on promoting new and trendy products. Many benefit brokers fall into that latter category, and I say this as someone who has been in the insurance industry for 25 years.

It used to be that group insurance brokers were more transactional. Get a good product at a fair price, provide some service, and your client is generally happy. Today, that same broker must create compliance initiatives, administer COBRA, FMLA, enrollment services, ERISA advice and some human resource functions. This new responsibility requires expertise beyond what’s needed to get an insurance brokers license, yet, like most entrepreneurs, we adapt. We must, however, get back to basics.

As group benefits brokers, we must turn our attention to the core mission of our profession today. That mission is strategic consultation and education for our clients, addressing the cost of providing healthcare in this country. It is, by far, the biggest driver of the increase in the cost of, and inability to afford, group health insurance.

Certainly, maintaining an awareness of professional trends has its benefits, and often a new offering can make a big difference for clients, but advisers need to dial down the reseller role and concentrate on imparting guidance to address core issues.

Next to payroll, the largest expense for most businesses is the cost of group health insurance. Yet many benefits advisers continue to go down the same old path by providing information on the same, tired, cost-shifting plans – this despite the fact that these plans’s premiums are rising faster than the cost of living.

See also: Benefits Advisers: It’s About to Get Real  

Benefit brokers need to begin educating clients on what is really driving premiums. One significant lesson that should be learned upfront is that joining a large insurance purchasing group is rarely the solution for small to medium-sized businesses, because savings are short-term for most. The dominant problem facing health insurance prices is the cost of providing care. It won’t cost less for a small firm with a staff of 10 for an MRI or maternity stay simply because it is in a pool of 5,000 employees. Although these multi-employer plans may show short-term savings, unless there is a marked improvement in the risk pool, as with every other group collective purchasing arrangement for healthcare, it fails. And, oftentimes these plans are dangerous self-insured arrangements where the employer, and sometimes even the broker, has little knowledge of the potential risk.

The need, from my standpoint, is for businesses to embrace measures that can result in less prohibitive healthcare costs, beginning with the use of telemedicine programs not owned by insurance companies. An eye-opening statistic from the American Medical Association indicates that over 70% of all emergency room, urgent care and primary care visits could be handled via telemedicine. This is a cost-effective alternative that will reduce the employers claims cost by a weighted average of $240 to $300 per visit. Offering telemedicine as a benefit not only decreases claims and keeps overall costs down, but the employees are less likely to miss work due to a medical appointment.

An independent second opinion program is another avenue to trim costs, yet a mere 19% of health care consumers get second opinions. This is head-shaking as a study conducted in 2014 by the Houston Veteran Medical Center and the Baylor College of Medicine estimated that 12 million people in this country are misdiagnosed annually. The study went on to show a change in diagnosis by nearly 15%, as a result of a second opinion and as high as 26%. The course of treatment is changed an astonishing 70% of the time. An independent medical second opinion program can provide simplified access to high-profile medical centers/teaching hospitals, specialists, etc. in collaboration with a patient’s attending physician team, often for little to no cost. Result: Employees are less likely to miss work due to a misdiagnosis or follow-up appointments. Consider, also, that the third leading cause of death in the U.S. is medical errors.

Offering employees a choice as to how they purchase prescription medications is another cost-efficient employer healthcare program. It fosters consumerism by deploying a comparative prescription drug environment and can lower cost for the consumer and the employer, sometimes substantially. Numerous online prescription drug programs can help members identify discounts, coupons and subsidies available for their high-tier prescriptions. Current and emerging technologies aggregate these programs so immediate access to potentially less expensive prescriptions drugs are identified and easily obtained by the patient. Also, some of these programs will have deductible and copayment assistance programs designed to keep people compliant with their medication regiments. Another easy way to reduce costs.

Employers need to weigh the worth of group health insurance against self-funding; if choosing the latter, always offer a reference-based pricing option. This plan recognizes that insurance company payments to hospitals can be as much as 300% to 600% more than what Medicare would pay. Reference-based pricing plans might pay the hospital just 50% over Medicare. If an employer or local market isn’t ready for this aggressive approach, there is a solid opportunity to educate about reference-based pricing.

See also: Reinventing Sales: Shifting Channels 

Those of us in the insurance and benefits industry have the responsibility to shed light on strategies that address the real drivers of cost rather than simply regurgitating what we are told are current industry trends.

North Carolina’s Battle for Healthcare Value

In North Carolina, a storm is brewing that highlights the healthcare industry’s influence and stranglehold over public dollars. An experienced civic-minded reformer with clout has emerged. Dale Folwell is a certified public accountant who served four terms as a Republican in the NC House of Representatives and was elected speaker pro tempore. Now state treasurer, he has responsibility for the State Employees’ Health Plan and its 727,000 employees, dependents and retirees (including my wife, a sign language interpreter in the Charlotte-Mecklenburg  school system). The plan spends $3.3 billion annually, making it the largest healthcare purchaser in the state. “Right now, the state health plan and members spend more on healthcare to employees and retirees than is appropriated for the entire university system or for public safety,” Folwell says. He has made it his mission to bring reason and stability to that program.

Beginning Jan. 1, 2020, Folwell proposes to switch the health plan’s reimbursement method to reference-based pricing. The approach, around a decade and now gaining momentum with employers around the country, would in this case pay 177% of (or nearly double) Medicare reimbursement. The health plan’s program, called the Provider Reimbursement Initiative, would allow providers a reasonable margin but would cut an estimated $300 million annually from the plan costs and another $60 million from enrollees’ costs in the program’s first year. The health plan’s board of trustees unanimously supported the proposal.

See also: 5 Health Insurance Tips for Small Business  

In promoting his plan, Folwell has described some of the issues he’s faced. The most important is that, under longstanding arrangements with the state’s providers and the plan’s administrator, Blue Cross of North Carolina, the health plan can’t access pricing information on the services it’s purchasing. “I know what I’m being charged, but I don’t know what I’m paying,” Folwell explained. “For years, the plan has paid medical claims after the fact without knowing the contracted fee. It is unacceptable, unsustainable and indefensible. We aim to change that.”

“I said [to Blue Cross], I know what you are charging, but what am I supposed to pay? There is no transparency,” Folwell said. “Blue Cross would not tell me, and there are laws on the books that say they need to tell us. The healthcare system has worked long and hard to develop this broken system, and they’ve been completely successful.”

Not surprisingly, the state’s healthcare lobby is gearing up to protect its turf.  State Rep. Josh Dobson, a McDowell county Republican, is expected to file a bill that would block Folwell from instituting the plan. Steve Lawler, president of the North Carolina Healthcare Association, one of a half dozen health industry associations with powerful lobbies, has claimed that Folwell has resisted discussion. But Lawler does not appear to have publicly addressed the transparency or excessive cost issues that are central to Folwell’s complaint.

While the battle is shaping up to be a high-stakes, all-out fight, the healthcare lobby may not simply get its way this time. Robert Broome, executive director of the formidable State Employees Association of North Carolina, favors Folwell’s plan and said, “The state health plan board made a very sound financial and public policy decision that will save money for taxpayers and will save money for plan members, while bringing some common sense to how we pay for healthcare. It boggles my mind that folks could actually line up and be opposed to this.”

The beauty of Folwell’s strategy is that it is grounded in doing the right thing, and he has made it very visible to the Carolina rank-and-file. When challenged, politicians and business leaders will likely have to openly support the public interest over the healthcare industry’s interest, especially an industry that has become wealthy by taking advantage whenever possible for decades.

Folwell’s bold initiative takes its cue from a groundbreaking reference-based pricing initiative by the  Montana State Employees Health Plan, with about 30,000 enrollees. That program’s success has since led the Montana Association of Counties to implement a similar program. Here’s an introductory video on how that program works, and another one here explaining how the payment is calculated.

As healthcare costs have relentlessly risen, much of it due to opaquely excessive care and unjustifiable unit pricing, federal, state and local government workers around the country have seen their benefits slashed and their contributions drastically increase. The initiatives in North Carolina and Montana may be the leading edge of a drive by purchasers exercising their newfound market leverage. There’s every reason to believe they can be replicated throughout the country by governmental and non-governmental purchasers, fundamentally moving our broken healthcare system in the right direction.

See also: Avoiding Data Breaches in Healthcare  

It’s also important to remember that reference-based pricing is just one of several dozen powerful quality- and cost-management arrows in a larger healthcare performance management quiver. Smart employers and unions around the country are finally beginning to go around their health plans and deploy high-performance solutions in drug management, musculoskeletal care, cardiometabolic care, imaging, allergies, claims review and many other opportunity areas for quality improvement and cost containment.

Folwell may well be the champion we need at the moment, and it’s possible he could achieve something meaningful. If governmental and business leaders follow his lead in North Carolina and around the country, it would be a key first step to drastically changing our health system for the better.

6 Tips for Reference-Based Pricing

Reference-based pricing, also called metric-based pricing, is an alternative to the traditional PPO model that offers substantial cost saving and benefits for self-funded employers by leveraging fair and transparent practices.

If you aren’t familiar with reference-based pricing, it could seem disruptive to your operations to make a change. However, many self-funded employers are implementing this alternative and reaping the benefits.

How does reference-based pricing compare with the PPO employers are currently offering to their employees?

PPO: The most prevalent form of health insurance, where the annual cost for employers increases year-over-year and high deductibles are a challenge for patients.

Members use a network of hospitals and doctors under a discount to take advantage of pre-negotiated costs. Oftentimes, these discounts vary widely inside the network and result in fluctuating costs. An independent study conducted by Castlight Health, a San Francisco-based healthcare price transparency company, shows PPO allowable amounts for common procedures swing as much as 500% in some regions.

The variable discounts are calculated on variable billed charges from the hospitals’ chargemaster, prices that many times are inflated and fluctuate dramatically between hospitals for the same service. In one example, the California Public Employees’ Retirement System (CalPERS), which manages the largest public employee benefit fund in the U.S, found that facilities throughout the state charged vastly different rates — between $15,000 and $110,000 — for a hip or knee replacement.

Referenced-based pricing: A modern solution for self-funded employers to manage healthcare costs for their business and employees.

Under this model, reimbursements to providers are based on the actual cost to deliver service or Medicare reimbursements. This more level approach starts at the bottom and adds a fair profit margin. Working with a reputable solution provider, self-funded employers can save up to 30% in their first year after switching to reference-based pricing.

See also: Myths on Reference-Based Pricing  

It’s not uncommon for employers to question making the switch from a PPO to a reference-based model. Is it worthwhile to make a change? Will employees understand the change? Does it require a lot of work? Let’s explore six tips for a smooth transition to reference-based pricing without disruption.

1. Do a little homework: Start by finding an experienced provider

Employers should only work with partners that are trusted and experienced with providing successful reference-based pricing solutions.

Look for a provider that has more than five years of experience auditing claims in all 50 states, welcomes reference calls, shares case studies from successful partnerships and retains clients long-term.

2. Schedule face time: Vet your potential provider

Request to see a provider’s operations in person to assess if the provider is financially secure, is equipped with resources and demonstrates a commitment to the success of their clients.

Look for a partner that welcomes site visits and pay particular attention to the size of the customer service team.

3. Commitment counts: Co-fiduciaries are an important consideration

Your reference-based pricing solution provider should be a partner that is 100% invested in your success.

Look for a partner that is willing to sign on as a co-fiduciary because it may be asked to assist in managing the financial assets of your plan.

4. Knowledge is power: Employee education is paramount

When you make a change to a benefits package, clear communication is important to ensure employees understand the new plan.

Look for a partner that will educate, answer questions and serve as a continuing resource to your office for the duration of the partnership.

5. Relationships count: Employers and medical providers must work together

Reference-based pricing is not a one-size-fits-all solution.

Look for a partner that collaborates with health systems (especially solution providers with established partnerships), and demonstrates dedication toward fair provider reimbursement.

See also: Innovation: ‘Where Do We Start?’  

6. Measure the impact: Assess how your plan is working

The partnership doesn’t stop after a plan is in place!

Look for a partner that is results-driven and reports on your cost savings. A provider should also provide a dedicated support specialist and be a continuing, committed resource.

Myths on Reference-Based Pricing

In the U.S., premiums for family coverage have increased 55% since 2007, and business owners often bear much of this financial burden. Employers are reaching their breaking point.

Employers are getting creative in an effort to reduce their healthcare costs, including looking for alternatives to the typical preferred provider organization (PPO) plan. Many are choosing self-insurance coupled with reference-based pricing, which is the assessment and payment of medical claims based on Medicare reimbursement data or the provider’s self-reported cost to deliver the service.

Reference-based pricing, also referred to as metric-based pricing, sometimes gets a bad rap from different players in the insurance industry due to outdated notions about this type of health plan model. The truth is that the cost savings and other positives are undeniable: businesses typically save up to 30% off their total healthcare spending.

In the constantly evolving world of healthcare, it’s important to understand how reference-based pricing has advanced over the past several years and the reasons why many self-funded employers are turning to reference-based pricing as a sustainable healthcare solution. Below are some common misconceptions and the facts you should know as an informed insurance or benefits professional.

Misconception: Providers will turn away patients on reference-based pricing plans.

Because self-funded employers with reference-based pricing select a reasonable level of reimbursement with a fair profit margin for medical services, the majority of hospitals and facilities accept payments every day throughout the U.S. A common misconception about reference-based pricing is that facilities will turn away patients who have this plan, but it is illegal to deny medical services to any patient in an emergency under the Emergency Medical Treatment and Active Labor Act (EMTALA). In the rare instance where admission is denied for other types of care, skilled reference-based partners can resolve the situation on a case-by-case basis with the facility.

See also: When Big Data Can Define Pricing  

Fair payments begin with a line-by-line, in-depth assessment of each medical procedure’s cost by a quality reference-based pricing partner that ensures that facilities are reimbursed quickly and properly. Further, the right partner will recommend reference-based pricing as a solution to companies that are the right fit, and in the right market.

When choosing a healthcare solution, brokers and employers should ensure the reference-based pricing partner is experienced, knowledgeable about the specific market and focused on building relationships with hospital systems — encouraging collaboration rather than confrontation. Essentially, the “reference point” needs to consider the provider cost and allow for a fair margin above that cost.

Misconception: Balance billing only happens with reference-based pricing.

Another reference-based pricing misunderstanding is that plan members will be responsible for paying large balance bills after receiving care — charges that the provider levies beyond what the insurance has paid. With an experienced reference-based pricing solutions provider, the chance of balancing billing for plan members is greatly minimized, because facilities receive a fair reimbursement that they willingly accept.

If a payment is not accepted, an expert reference-based pricing solution will assist plan members with balance bills every step of the way and not leave them to resolve the issue on their own. The truth is that balance billing is common across healthcare and most notably occurs with out-of-network claims in traditional PPO health plans, and these members do not have anyone to advocate for or support them. In fact, nearly one-third of privately insured Americans have received a surprise medical bill in the past two years when their health plan paid less than expected. In addition, the number of Americans who don’t have the means to pay unexpected medical bills or are at risk for bankruptcy as a result of uncontrollable healthcare expenses is on the rise.

In the case of a payment dispute or balance bill on a reference-based pricing plan, a good partner is dedicated to supporting plan members and advocating on their behalf with minimal disruption, resulting in satisfaction for all parties involved.

Misconception: Employers with reference-based pricing are destined for legal action.

It bears repeating that most facilities accept payments when the reimbursement amount is fair and paid on time. In the rare instance a facility does not accept payment, there are many steps before the threat of litigation.

Often, when a local company meets with a hospital system to discuss reimbursement conflict, there are multiple opportunities for positive results for each party. There are significant advantages for both the health systems and the employers to resolve the dispute by working together and setting precedent for future dealings.

See also: 4 Trends to Expect in Health Insurance  

If a resolution is not reached, it is vital that an employer is partnered with a solutions provider with strong patient advocacy and legal expertise, ensuring all members and the employer are protected against aggressive billing, collections and potential legal action.

Reference-based pricing can be the missing puzzle piece.

It is vital that brokers, employers and other industry professionals are armed with the facts about reference-based pricing. Employers should not overlook its many benefits, and industry professionals should know when to recommend this viable solution. Businesses that implement reference-based pricing can use their savings toward growing their business or putting dollars back into the paychecks of their employees.

Brokers that offer reference-based pricing can remain in the center of the healthcare benefits discussion and showcase their knowledge to clients. And both employers and brokers should choose an experienced reference-based pricing partner to ensure not only the greatest cost savings but the smoothest experience possible for the employer, employees and provider once the plan is implemented.

When Leaders Don’t Lead on Medicaid

The big debate across the states over the expansion of Medicaid only deals with half of the equation.

The first half of the equation is political: who gets added to the entitlement rolls and who doesn’t. Wisconsin’s Gov. Walker, for example, decided to: turn down federal funds for expanding coverage; add 80,000 adults who are below the poverty line; and move some 70,000 residents who are above the line to the new federal exchange and subsidies.

But Wisconsin, like other states and the federal government, has ducked the rest of the issue: the staggering cost increases. Medicaid expenses, for which the states pay about 40% and the feds 60%, are crowding out funding for just about every other priority: K-12 education, the university system, environmental advances and economic development.

It’s the same story on health costs at the federal level. Medicaid, Medicare and the health bill for federal employees are the biggest driver of the crushing federal deficit. One recent secretary of defense said the department spends more on health costs than on weapons.

The void in the debate is the deafening silence on how to get the costs under control, with the exception of cutting people off the rolls.

It’s especially sad because there are solutions. Leading-edge employers in the private sector have put together a new business model for the delivery of health care that drastically lowers costs while improving health. Their best practices are applicable in the public sector, as some units of local government have discovered to great advantage.

Here are some proven, audited, beyond-debate cost-cutting moves that could be made with Medicaid plans:

  • Consumer-Driven Health Plans (CDHP) — Indiana has received a waiver from the Obama Administration to install Health Savings Accounts and to set higher deductibles for Medicaid recipients. Such CDHP plans cut costs by 20-30%. School districts and counties have deployed HSAs, as has Indiana for state employees and Purdue. Medicaid is rife with utilization abuse, because of an absence of such incentives and disincentives.
  • Reference Based Pricing (RBP) — CALPERS, the giant California pension fund that buys health care for 1.3 million members, has installed caps on procedures, such as $1,500 for colonoscopies and $30,000 for joint replacements. It’s easy to pay twice those maximums or more. But why do it? Why not RBPs for Medicaid? Note: A good number of providers have accepted the maximum prices.
  • Medical Homes — Another 20-30% can be cut from medical costs by offering proactive primary care. Many companies have set up on-site clinics to provide holistic care and keep people out of expensive hospitals. Why not set up medical homes where there are concentrations of Medicaid patients? Primary care is a lot less expensive than specialty care, the main offering of large hospital corporations. It’s also less expensive by far than care from emergency rooms, to which Medicaid entitlees often default. Obamacare provides some funds for community health centers, so there is a start for such medical homes.

The biggest problem for introducing aggressive and innovative management into Medicaid dynamics is the joint ownership of the program by federal and state governments. Differing agendas produce stalemate in most states. And, in the void, the costs scream upward.

Gov. Walker turned down the new federal dollars for a larger Medicaid program because of skepticism about the long-term availability of federal dollars. The soaring, unsustainable cost increases give substance to his position.

But his worry should be redirected to the costs. His concerns could be mitigated if the overall charges were sharply reduced.

He would look presidential if he followed the lead of private sector payers. That, again sadly, is in the political arena, so he probably wouldn’t get a federal waiver from the Obama administration for innovations, even if Indiana did.

Who loses in the managerial paralysis, when leaders don’t lead? In the case of Medicaid, it’s the taxpayers and poor people.