Paying less for healthcare is relative, but relative to what?
When we talk about paying less for healthcare, it is relative to the amount that would have been paid otherwise. In the US, healthcare costs are notoriously high, and there are many factors that contribute to these costs, including high drug prices, administrative costs, and the fee-for-service payment model.
So when we say that paying less for healthcare is relative, we mean that it is relative to the prevailing market rates for healthcare services in a particular region or market. For example, if a reference-based pricing model is used to set a maximum allowable cost for a particular procedure, it will be relative to the average or median cost of that procedure in the same geographical area.
Overall, paying less for healthcare means that individuals, employers, and insurance companies are able to save money on the cost of medical care, which can help make healthcare more affordable and accessible. However, it is important to note that paying less does not necessarily mean compromising on quality of care or access to necessary services. It is possible to pay less for healthcare while still receiving high-quality care from qualified healthcare providers.
So what is Reference-based pricing (RBP)?
Reference-based pricing (RBP) is a pricing strategy increasingly used by employers and insurance companies in the healthcare industry. It sets a fixed amount of money that will be paid for a medical service or procedure, based on the cost of providing the service, as opposed to the traditional approach of paying based on billed charges or negotiated discounts with Preferred Provider Organizations (PPOs).
Billed charges refer to the amount a healthcare provider bills a patient or their insurance company for a service or procedure. The actual cost of providing that service may be much lower. The PPO discount is the amount of money a healthcare provider agrees to accept as payment from an insurance company in exchange for being part of their network. These discounts are often negotiated and can vary between providers and insurance companies.
When it comes to claims, there are two main types: those paid for in-network and those paid for out-of-network. In-network claims are paid based on the negotiated discount rates between the provider and the insurance company. For example, a knee replacement surgery that costs $75,000 may have a negotiated rate of $37,500 with a PPO. RBP claims are paid based on a percentage of the Medicare-approved amount, which is often much lower than the billed charges. That same knee replacement surgery that costs $75,000 may only be approved for $16,000 by Medicare. An RBP claim would reference the $16,000 and would end up somewhere between 130% to 170% of the medicare pricing like the example below. Saving the health plan a whopping $15,000!
The percentage of employers in the US that are using reference-based pricing (RBP) varies depending on the source and methodology of the survey. According to a survey conducted by the National Business Group on Health, approximately 20% of large employers (those with 5,000 or more employees) were using RBP in 2021, up from 14% in 2018. Another survey conducted by the Kaiser Family Foundation found that 9% of all employers were using RBP in 2020.
While the percentage of employers using RBP is still relatively low, it is a growing trend in the healthcare industry. As more employers look for ways to contain healthcare costs and provide transparent pricing to their employees, RBP is becoming a more popular option. Some experts predict that the use of RBP will continue to grow in the coming years, especially as more data becomes available on its effectiveness in controlling costs and improving access to care.
“Typically, we see the basic repricing of claims using RBP principles drive savings of 20-25% off their overall health care spend,” says Omar Arif At ClaimDOC, "We take it beyond reference based pricing and use our in-house clinical team to audit every claim to remove coding and billing errors before it’s repriced. This additional step to eliminate waste and abuse usually drives an additional 10% of savings and supports the Plan Sponsors’ responsibility to be a good steward of plan dollars”
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So what happens when you eliminate the PPO, EPO, HMO etc...???
RBP can help democratize access to care by reducing the cost of medical procedures and making them more affordable for patients. When employers and insurance companies use RBP, they are setting a fair and transparent price for medical services that providers must accept. This can help level the playing field for patients and prevent healthcare providers from overcharging for their services.
"Democratizing access to care" means making healthcare services more accessible and affordable to a wider range of people, regardless of their socioeconomic status or geographic location.
RBP can also help to level the playing field among healthcare providers, encouraging them to compete on the basis of quality and cost rather than simply charging as much as they can get away with. This can make healthcare more affordable and accessible for patients, especially those who are uninsured or underinsured.
By eliminating price variation across different providers and regions, RBP can help to ensure that all patients have access to the same level of care at a fair and reasonable price. This can help to reduce disparities in healthcare access and outcomes, promoting a more equitable and just healthcare system.
What are the hurdles with RBP?
While RBP can be an effective pricing strategy, there is a small percentage of claims that may result in a balanced bill. This occurs when the amount paid by the insurance company or employer is lower than the amount billed by the healthcare provider. In these cases, the patient may be responsible for paying the difference. However, many RBP providers offer balanced billing protections, which means they will work with the patient and the healthcare provider to negotiate a fair payment amount.
The biggest challenges associated with implementing reference-based pricing (RBP) is helping employees understand how to use their new health plan that no longer has a network. With traditional network-based health plans, employees are typically provided with a list of in-network providers, which can make it easier for them to find and access healthcare services.
In an RBP model, however, employees may need to take a more proactive role in identifying and selecting healthcare providers, which can be daunting for some individuals. To help employees navigate this process, many RBP providers have developed concierge services that can assist with finding and scheduling appointments with providers that accept the maximum allowable cost set by the RBP program.
These concierge services may provide a variety of services, including assistance with finding providers, negotiating prices with providers on behalf of employees, and helping employees understand their healthcare benefits and costs. By providing these types of services, RBP providers can help to alleviate some of the challenges associated with implementing an RBP program and make it easier for employees to access the care they need.
Overall, while implementing an RBP program can present some challenges for employees, the availability of concierge services and other support mechanisms can help to make the transition to this pricing model smoother and more manageable for employees.
Sources:
Retired: Large Group Health Plan Professional ( 1972-2022)
1yHmmm..Fair Market Value is standardized by what Medicare Pays, with no Actuarial Agreement that what Medicare pays for a Procedure or Hospital Stay covers the Cost to Produce that Service, with a reasonable Operating Margin? Most consumers have a reasonable idea what it costs to replace their car; but not so sure if that applies to replacing their knee? What if CMS and all self-insured Employers & BUCAs, instead of paying for Price Transparancy and RBP% Studies ( along with all Hospital Systems), pay Accountants to determine the Actual Cost to produce the top 25 Most Common Surgical Procedures?