Are you an employer looking to save on employee health insurance? Then it’s worth a few minutes of your time to familiarize yourself with a cost-containment strategy that could save your business and your employees tens of thousands of dollars on hospital and other healthcare bills.
It’s called Referenced Based Pricing (RBP) and fundamentally, it’s about paying discounted rates on medical services, not ‘list prices’ or arbitrary charges, which can be exorbitant. In fact, many hospitals and other healthcare providers charge two- to three-times –and sometimes much more–what is allowed by Medicare. Here’s an example: during a claims audit, TAC discovered that a patient was charged $32,998 for dialysis services. That is a whopping $30,557 above what is considered reasonable and customary. (We recommended that the client pay $2,440 for this service.)
Some of these extraordinary bills have put Americans in debt they are struggling to contend with. A just-released study by the Kaiser Family Foundation reveals that four in 10 Americans are in debt today because of a medical or dental bill.
With RBP, one TAC Benefits Group client reduced medical bills 65% over previous costs. The same client also achieved nine years of consistent savings by holding down premium increases. Want to know more? Read on.
What is Referenced Based Pricing?
Rather than paying ‘chargemaster’ rates—the standard ‘list price’ for hospital services—RBP plans reimburse providers using an objective reference point. Usually, that point is the Medicare reimbursement rate plus a certain percentage above it, somewhere between 20% and 70%. On average employers pay 140% of Medicare rates.
In contrast, on average U.S. employers pay hospitals 247% of what Medicare would pay. (Source: RAND Corporation, 2018)
How does Referenced Based Pricing Work?
Here are some key facts.
Self-insured employers – RBP is a cost containment strategy for employers who self-insure. Employers work with their broker to determine the best plan design for their employee population in terms of flexibility and reimbursement rates. They also employ a Third Party Administrator (TPA) to oversee and manage the plan details.
Flexible plans – Employers decide the extent to which they want to apply RBP. Some employers keep a PPO network and utilize RBP for certain services, say for dialysis. Others forego all network contracts, treating all claims as ‘out of network,’ and applying RBP to everything. Another scenario is a combination of specific networks (think specialty doctors) and RBP for everything else.
Employee responsibility – Individual employees are responsible for normal insurance related expenses (e.g. cost sharing in the form of monthly premiums). They also are responsible for being informed consumers. Usually, the RBP plan offers a list of providers who will accept the agreed-upon pricing for each medical service. If an employee selects a different doctor or hospital, they risk balance billing – receiving a charge for the difference between the provider’s reimbursement from PPO plans and the RBP reimbursement. This is similar to traditional insurance, where an employee receives bills from out-of-network providers.
Two key considerations
While cost savings can be considerable with RBP, there are a few factors to keep in mind as you explore this strategy.
- Balance billing. If employees choose a provider that does not accept the RBP reimbursement rate, they may receive a bill from the provider, and the cost can be significant. In rare cases, the provider may choose to sue if the employee cannot pay. Make sure that the RBP provider has a legal team to handle these uncommon, but real situations.
- Employee communications. Since RBP is a different type of model, employee education is important. Team members need to understand how to use the plan correctly in order to achieve savings—from choosing the right providers to showing their card upfront, to NOT paying balance bills.
Questions to ask about your broker about RBP
Do you negotiate rates on the front end or back end? Know that some plans negotiate with the provider before the service is performed. This reduces the risk of balance bills being sent to employees because the hospital has already agreed on the reimbursement. Other plans negotiate after the service is performed. While this gives the plan more negotiating room because the provider wants to get paid, this situation is more likely to result in a balance bill.
Are there enough providers in my market who will accept RBP? Geography is a factor. In large, metropolitan areas with plenty of healthcare provider options, hospitals and doctors are generally open to negotiation with RBP providers. However, in rural and smaller markets, there may not be enough providers accepting reference pricing to meet reasonable quality standards.
How do you support employees with balance billing to reduce their exposure? This is a key question. Make sure the RBP provider has a process and a commitment to advocating for employees who receive balance bills.
You should also ask the broker about ACA compliance and best practices to communicate RBP to employees.
Is RBP right for your company? Only a broker with deep experience in self-funding and cost containment will know. If you’d like to speak with one of our experts, contact us at kcleary@tacbenefitsgroup.com.