By Manoj Rajwani, USI Vice President, Employee Benefits
Employers and their employees continue to struggle with skyrocketing health care costs. The job market is already competitive, and many companies are overwhelmed with how to manage the benefit costs but still offer a quality program at the same time. Many of those same organizations are diligent about controlling costs in other areas of their business but often health care is the remaining item or service for which price or quality must suffer.
Most of the focus today is on cost containment and employers avoiding annual increases. Very few solutions in the marketplace have had any significant impact on the actual costs of care. Alternative reimbursement strategies such as referenced-based pricing (RBP) is one such solution that is gaining a lot of attention because employers and patients constantly struggle with understanding what they are being charged. RBP plans, or Cost Plus plans, reimburse providers according to a schedule of published Medicare fees or public records detailing the actual cost of services as opposed to negotiating discounts with providers.
For example, high-tech imaging negotiated rates can range as much as 500% between standalone centers and hospital-based facilities. Surgical rates regularly vary by 100% without a direct correlation to quality. Preferred provider organization (PPO) networks negotiate discounts to be taken from billed charges, so it is in the provider’s best interest to inflate billed charges for maximum reimbursement. In addition, the government reimbursements through Medicaid and Medicare are typically low, so it is the employer-sponsored plans that are making up the difference by paying higher amounts to providers.
Reference-based pricing is a way for employers to cap the amount they’ll pay to cover claims.
With RBP, employers reimburse providers based on a predetermined percent of Medicare’s reimbursement. Medicare reimbursement is used as a guide because it is the only universally accepted payment rate. It is typically enough to cover the service with some extra for the doctor or hospital. By pricing reimbursement as a percent of Medicare, providers generally react positively because they typically receive less from Medicare.
Some plans only cap the cost of certain medical procedures, such as hip or knee replacements that vary greatly in price but not in outcome. Employers usually work with a reference-based pricing vendor or third-party administrator to set fixed payment levels.
Employees who have this plan do not have to see doctors in network, since there is no network. They can go anywhere the reimbursement is accepted. Depending on the plan, employees may have to pay a balance bill for the difference in price.
The main advantage of this payment system is that it adds transparency to health plan pricing and saves employers money. It also keeps premiums and out-of-pocket costs lower for employees.
On the downside, employees may have to search to find providers who accept the reimbursement level. Employees also may be liable for balance billing if the care provider insists on more than the set price. This is most common with hospital stays. Some plans make it the employer’s responsibility to pay for any balance bills they cannot negotiate. A reference-based plan also requires more employee education so they know what to do if they are balance billed.
In general, providers accept the payment or a final negotiated price that is below the cost of traditional payments about 95 percent of the time.
USI’s employee benefits consultants help employers evaluate their options and recommend funding alternatives based on company size, demographics and risk tolerance. Accessing our Omni Knowledge Engine™, which is a collection of over 150,000 clients’ complex operations information and over 100 years of health care management case study experience, USI provides immediate health care cost savings solutions and industry-specific benchmark data in real time. If you are interested in getting a better handle on cost transparency of your medical claims or learning more about alternative reimbursement strategies, contact your USI representative.
Manoj Rajwani is Vice President for USI Northeast. With over 15 years of experience in consulting and financial services, he takes pride in his role as a trusted benefits advisor to his clients. He is an advocate on finding solutions that protect individuals from escalating health care costs.