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In the ongoing, seemingly never-ending, battle against rising medical costs, reference based pricing (RBP) may be a smart approach for self-insured health plans. Here, I’ll provide an overview looking at what I’ve found working with clients moving to this model: areas of concern, keys to success, and a blueprint of what you can expect when entering into a Reference Based Pricing model.
Simply put, RBP is a cost containment model that limits what a health plan will reimburse providers for services. Typically, reimbursement rate criteria under an RBP model is a set percent of the Medicare price or the facility’s true cost of the service, plus some chosen profit margin. This reimbursement level, while lower than that from private insurance, is still well above Medicare, which is the source of the majority of provider claims payments.
The RBP model applies to facility utilization: hospitals, surgical centers, radiology facilities, etc. More recently, however, RBP models have been developed for physicians’ services as well, seeking to push cost savings into all facets of medical care.
Getting off on the right foot: Educate, Educate, Educate
As a self-insured health plan, you still have a third party administrator (TPA) to process claims. Working under the RBP model, however, you will engage with a separate vendor to reprice claims as they come in. But the right vendor will do more to help ensure your success with the RBP model.
Vendors we work with emphasize employee education as a key to implementation, because nobody likes surprises. While employees will no longer be bound to a network and can quite literally go anywhere they want for services, the providers they see may be unfamiliar with this type of reimbursement model, and may never before have seen the ID card they will be presenting.
Engage employees in smaller meetings, have more of them and rely heavily on your vendor partners. The vendors have been through implementations before. They know what questions are most important for employees to have answered and how to accurately describe what employees are likely to experience.
Initially, you may choose to apply RBP only to facility services. This helps for a few reasons; first, it can help minimize employee confusion, helping them feel they could maintain relationships with their physicians and a familiar home to coordinate care.
Simple processes to handle any and all confusions are also key. Is the hospital is confused? Call the number on the card. Employee confused about a balance bill? Call the number on the card. Behind that number, make sure you have a TPA well versed in RBP and with a strong support processes for employees facing questions or concerns.
Read enough material on RBP and you’ll eventually see accounts of employees put in the middle of a balance billing issue. Make sure employees understand the issue and that they will be protected, even if it reaches a point of litigation.
Employers can engage with partners offering differing levels of protection to individuals with associated costs varying depending upon the level of protection. Statistics on balance bills relative to total number of claims, however, show that the overwhelming majority of claims are processed or negotiated without any impact to employees at all.
Make sure Stop Loss is on board
Partnering with a Stop Loss provider who understands the RBP world is essential. Under the RBP model, there is a potential for claims to be paid and settled over longer periods of time than a standard self-insured networked plan. Additionally, Stop Loss carriers that understand the RBP model should significantly reduce the premium they are charging, since the reimbursement rate differences will significantly lower the cost of large claims.
Enjoy the results
On a mature basis, we expect some clients could see savings in the range of 25-30% on their medical spend. In fact, at times, we’ve found instances where payments to the vendor managing the cost of the claims is higher than payments to the providers for the claims themselves. It really changes the game heading into the next renewal knowing that you may not have to increase any employee costs.
Is it right for everyone? No, of course not. Once size never fits all. But if you are operating a self-insured program, an RBP model is a flexible, proven and effective approach well worth exploring. Those that adopt early will become those that benefit first and most.
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