Improving health care affordability is a top priority for employers and other health care purchasers across the country. But navigating through the sea of available cost-containment strategies can be difficult given the complexities of health care pricing, contracting, and benefit design.
Although they’re hardly novel, reference-based pricing (RBP) plans have started to gain traction as a cost-containment strategy because they address the root cause of commercial health care cost inflation – prices. In an RBP program, provider payment amounts are tied to an external benchmark, usually Medicare. RBP vendors pay providers a percentage of the Medicare rate with or without a formal contract or agreement. Providers will either accept the reference price or try to recoup their full rate by balance billing patients for the remainder. If this happens, their cavalry of advocates and support services to arrive at a compromise rate with the health care provider, or the RBP vendor will dig in its heels until the provider gives up or relents. See our blog to dig further into RBP and how the RBP programs offered by vendors differ from the other types of reference-based strategies.
What is CPR doing to help self-funded purchasers understand RBP programs?
Between late 2020 and April 2021, CPR set out to determine if and how RBP can work in practice, the risks and trade-offs it poses, and how purchasers might merge RBP with more traditional health care strategies. Additionally, CPR developed standards and specifications that purchasers can use to evaluate an RBP vendor. As part of our work, CPR evaluated 8 RBP vendors and 1 RBP Third-Party Administrator to understand how each of their offerings perform against our specifications. While CPR did not charge vendors to participate in our evaluation, we gave them the option to contribute financially in exchange for marketing opportunities, such as additional recognition in the final report and a chance to introduce their product to CPR’s audience. Finally, we produced a live Virtual Summit and a free report on the current state of the RBP marketplace.
Altogether, CPR’s investigation of the RBP marketplace culminated with the release of four products:
- RBP Evaluation Toolkit, comprising standardized questions, response specifications, and an evaluation tool to measure program outcomes.
- RBP Vendor Summary and Detailed Scorecards, which provide CPR member organizations with insights into each vendor’s performance against specified attributes. The summary scorecards are available for purchase to broker/consultants and health care purchasers.
- A 90-minute Virtual Summit, which covered the history and evolution of RBP models, a panel of experts discussing the risks and regulatory ramifications of RBP, and then a second panel of RBP customers who shared their real-world experience implementing and sustaining an RBP plan.
- A free report titled Reference-based Pricing: Risks and Rewards of Playing Health Care Hardball, which examines the evolution, mechanisms and strategy behind RBP solutions, and what employer-purchasers should consider when evaluating an RBP vendor.
To continue the conversation, we’ve compiled some of the most frequent questions we’ve received since releasing our suite of RBP tools. Thank you to the following experts who provided help drafting these responses:
- Justin Curtis, Alliant Employee Benefits
- Ron Peck, The Phia Group
- Matt Lund, Fortune Management, Inc.
Questions on how RBP vendors operate, and how they interact with health care providers.
Does the RBP vendor fee vary by what services the vendor provides?
Yes, but the RBP vendor’s administrative fee also depends on factors like the scope of the network, whether the RBP vendor itself is responsible for paying negotiated settlements, and whether the vendor charges a PEPM vs. % savings administrative fee structure.
When the RBP vendor and provider “agree” on a rate, who pays the difference? The RBP vendor or the employer?
It depends – and the outcome will likely be reflected in the vendor’s administrative fee. Some vendors agree to pay for any negotiated settlements that take place – these are the vendors most likely to take a “fight to the end of time and space” stance against providers – but will also charge higher administrative fees. Other vendors retain agreements with their customers that allow the vendor to negotiate within a corridor of Medicare rates – i.e. the purchaser authorizes the vendor to negotiate within + X% of the reference rate. In these cases, the employer pays the negotiated settlement and may require the patient to pay a cost-share of the final, negotiated price… depending on how benefits are constructed.
Does RBP help mitigate against out-of-network (OON) prices? For example, does RBP help with the anesthesiologists who are always OON?
From Matt Lund, Fortune Management, Inc. To a degree. If you are willing to work with these providers about how reimbursement will occur (i.e. full payment to the provider the day care is received) you can find success. It is important to open dialogue with the provider’s finance department where possible. We have found that when engaging them in the conversation, our success rate of getting an agreement in place is far higher compared to working only with the contracting unit. For anesthesiologists, there are mixed results. While we can achieve lower reimbursement levels compared to insurance carriers, this continues to be a challenge.
During CPR’s Virtual Summit, RBP vendors claimed that 98% of outpatient provider claims and 90% of facility claims are accepted at rates much less than commercial rates. Has CPR seen any data to support this assertion?
It’s important to differentiate between the percentage of claims that receive a balance bill and the percentage of claims spend that results in a balance bill. The larger the claim – facility claims in particular – the more dollars at stake and hence the greater the risk of providers pushing back. Remember that pursuing a balance bill requires time and resources from providers. For small dollar amounts, most providers will decide that the juice isn’t worth the squeeze. For a bill in the six figures, the picture changes.
Do RBP vendors pay providers more promptly (compared to insurer-organized PPOs)?
Yes. When an RBP vendor has a direct contract with a provider, or if the RBP vendor and a provider pre-negotiate a one-off case rate, they generally eliminate the patient’s cost sharing, which greatly expedites the provider’s payment. This is one of the reasons why providers are willing to accept RBP plans even though they pay less than traditional insurance plans.
Is provider quality a criterion for evaluating a RBP vendor?
Provider quality data has three applications under an RBP plan:
- Provider contracting: RBP vendors can use clinical quality to select providers with whom they establish direct contracts, they may pay high-achieving providers a higher multiple of Medicare, and/or introduce value-based payment contracts.
- Patient navigation: advanced RBP vendors will use quality outcomes in their patient-facing navigation tools to guide patients to providers who are high quality and will accept RBP payment
- Internal accountability: RBP vendors can report on clinical quality outcomes alongside cost of care savings
The most advanced RBP plans use clinical quality data for all three of these applications. This is indicated in CPR’s RBP vendor scorecards.
Questions about how self-funded purchasers can operationalize an RBP program.
How do purchasers put a RBP strategy in place? Is it full replacement or just for certain health care services?
According to Justin Curtis from Alliant Employee Benefits, there are three deployment options for self-funded purchasers to use for a RBP strategy.
- Total Network Replacement – A RBP strategy is deployed as the primary reimbursement model for all providers in a benefits program. In this model there are no in- or out-of-network providers, all providers are reimbursed on the reference price at a common benefit level.
- Facility Only – A RBP strategy is deployed only for hospital-based claims and a physician and ancillary (lab/imaging) network is employed to serve as a PPO for professional visits. In this model, there are no in-or out-of-network hospitals; all hospitals are reimbursed based on the reference price at a common benefit level.
- Out-of-Network Only – A RBP strategy is deployed only for out of network claims. In this model there is a Preferred Provider Network in place for all in-network claims. Any claims from providers who are not in the Preferred Provider Network will be reimbursed at the reference price using the out-of-network benefit application according to the purchaser’s benefit design.
Does the TPA get eliminated or is the RBP vendor an added layer?
It depends – all RBP products require a TPA to pay claims. Some RBP vendors will work with any TPA, others have a few preferred partners, some come as a package deal or offer an integrated solution.
What should purchasers do if there are hospitals who are willing to participate in RBP, but the insurance companies feel threatened by being cut out of the picture? How should a purchaser get all parties on the same page?
From Matt Lund, Fortune Management, Inc.
Yes. Hospitals/providers may have concerns that insurance companies will exclude them from their networks, causing them to lose patients and revenue. It is interesting that a hospital could be willing to provide care for a lower amount through RBP, but an insurance carrier prevents them for doing so. If the public is made aware of such practices, it never ends well for the insurance carrier. If the provider group is truly open to moving to a reimbursement structure that is in line with RBP, this should be promoted and embraced within that city/community.
We have been involved in these discussions directly and seen instances where a provider group faced this situation. Under those circumstances, it is important to understand what the difference in payment between the RBP plan and insurance carrier are. I recommend always understanding where members receive care and what the differential of payment is prior to moving forward with RBP. This analysis allows the employer to have a proactive discussion with the hospital to discuss goals and provide the hospital with insight into the difference in payment/impact it will have on the insurance carrier revenues.
Questions about balance billing and patient protections
If the provider does not give in or settle, can they sue the patient?
From Ron Peck, The Phia Group: Yes, with caveats. Providers can litigate and/or send patients to collections to collect undisputed balances. Usually, one of the first steps we take is to dispute the validity of the balance in the first place, which suspends the process as it relates to targeting the patient. Furthermore, some entities offer services that provide defense for the patient and financial indemnification for the patient as well.
While the vendor and provider are fighting it out, isn’t the patient under a lot of stress? Can the patient’s credit be ruined in the interim? And, is it fair for the patient to be at risk for even a partial failure to get the reference-based price?
From Ron Peck, The Phia Group: This is why a claim should only be allowed to remain open for an extended period of time if three things are true: (1) the participant’s finances and credit are not being impacted [collections are placed on hold as a function of law if/when a balance is in dispute], (2) the participant is aware of the situation, and in support of the approach, and (3) extending the duration of the conflict will achieve a result favorable to the plan.
Is the patient at “full risk” of balance billing?
If neither the plan nor vendor indemnify the patient, then, yes, the patient may be at “full risk” of balance billing.
Learn more about how RBP vendors mitigate the risk of balance billing in CPR’s Report, Reference-based Pricing: Risks and Rewards of Playing Health Care Hardball.
Questions about policy and market conditions
How do expect RBP to play out for self-insured plans in Massachusetts where balance billing is banned?
From Ron Peck – The Phia Group: No state outlaws all balance bills. As with the new Federal “No Surprises Act,” different states prohibit certain types of balance bills. Furthermore, most (if not all) of these states do less to “cap” what the provider can charge, and rather, force the plan or carrier to pay the bill – thereby “protecting” the patient. Unfortunately, this ignores the fact that – as the plan or carrier is required to pay more – premiums and contributions will increase; meaning the patient eventually pays after all.
Can you say a bit more about the effect the No Surprises Act will have on this space?
Check out Ron Peck’s 3-part series in Benefit Pro Magazine:
Part 2: When negotiations break down
Part 3: Taking control of rate-setting
Do you see any regions where RBP is more widely used?
From Justin Curtis, Alliant Employee Benefits: Regional penetration of the RBP strategy varies greatly. Generally Metropolitan Statistical Areas (MSAs) tend to be more targeted for this model as there are options for transfer of care, which provides some market pressure. In smaller cities or rural settings, RBP has a tendency to be more disruptive, both in a good and bad way. If used as a tool to open the door to a discussion around Reference Based Contracting, it can lead to a collaborative relationship with the local health system.
However, I’ve also seen smaller city hospitals reject access for RBP patients and create significant disruption. Market evaluation is a key step in the evaluation process of moving to an RBP strategy. Most RBP vendors can provide a disruption analysis against current claims or employee zip codes outlining balance bill rates and average Medicare acceptance rates in the given geography.
Have you seen RBP work in rural areas where there is only one hospital in town – travel to the next is over an hour – and monopolistic pricing is in place?
From Ron Peck, The Phia Group: Yes, if other consideration is provided, such as (but not limited to), prompt payment, electronic payment, and – most relevant – plan payment of 100% of the payable amount. In other words, providers prefer not to balance bill. Providers know that patients are slow to pay, and sometimes cannot (or will not) pay. It looks bad to pursue payment from patients. It costs time and money to pursue patients. If a plan is willing to waive co-pays and deductibles, eliminating all pursuit of the patient, that added value sometimes gets the parties over the finish line.
From Matt Lund, Fortune Management, Inc. This is very common in rural areas. And even more challenging if the hospital in question has or is trying to offer its own insurance plan to employers. In these instances, we work with our clients to have in-person meetings with the hospital to come to a resolution. This humanizes the process – and in the overwhelming majority of cases, individuals at the table all know each other personally, which facilitates less abrasive conversation.
It is also important to come to the table and provide solutions to everyone’s concerns. Hospitals concerns are loss of revenue, while the employer’s concerns are increased costs of insurance which creates cost shifting to their employees. Reaching an agreement can take time, but we have found that compromise is possible when employers and providers are negotiating face-to-face rather than through an intermediary. On the other hand, while the next provider may be an hour away, if that provider has better outcomes and lower costs, some employers are willing to travel for elective care to achieve better value.
Photo by Brett Jordan on Unsplash.