How Best Practices In The Right Environment Mean Success With Reference Based Pricing

Is it right for your organization?

There’s been no escape from healthcare inflation, which has created a never-ending struggle for plan sponsors to devise workable solutions as health plan costs continue to outpace both wage increases and consumer prices.
 

The environment is increasingly ripe for Reference Based Pricing (RBP). It’s a provider payment model that has been slow to catch on among plan sponsors, but as the kinks are worked out over time, its rewards have increased, gaining acceptance amongst employers.     
 
Is it right for your organization? The experiences of some employers make RBP worth considering. However, the first order of business is to understand how it works, its potential pitfalls, and the best practices that can make the difference between success and failure.
 
Reference based pricing is commonly adopted by self-insured employers, typically with 150 to 200 employees, however, this payment model can be implemented by self-insured employers of any size. Under this program, a reimbursement cap (maximum allowable charge) is set for provider services. That maximum allowable charge is typically tied to Medicare reimbursement rates. So a particular procedure might be reimbursed at Medicare plus 25%, or Medicare plus 40% – a price set regardless of provider or service rendered.
 
The goal is to encourage plan members to comparison shop and create savings for plan sponsors on total medical claims paid. One early study suggested that if all employers adopted RBP for selected procedures, potential aggregate savings could reach $9.4 billion^[1]. Fourteen HUB International clients that phased in RBP between 2012 and 2017, realized median savings that were 27 percent better than the traditional self-insured medical market that relies on network discounts. Some experienced savings as high as 46 percent^[2].
 
The RBP model aims to allow employers to better mitigate some of the financial risks of traditional self-insured medical plans without compromising the quality of benefits and services rendered to employees. Ensuring that RBP lives up to such expectations requires the understanding of certain principles from the outset: 
 

 
Even the best efforts, though, can’t totally avoid the exposures this model may pose to employees and employers alike. Balance billing is a common challenge under RBP – when an employee is billed for the difference between what the provider charges for a particular procedure and the plan’s allowable charge.
 
That’s one reason to be meticulous in drafting the plan document for the self-insured plan pursuing RBP and reviewing the terms of stop-loss contracts. Between 2% to 5% of RBP claims are balance billed, therefore it’s critical to ensure the plan document and stop-loss agreement are drafted in such a way, that it avoids transferring risk to plan participants whileprotecting the interests of the plan.
 
Following four best practices go a long way toward ensuring a successful RBP strategy:
 

1. Build broad leadership support. If this is seen as an HR-only initiative, RBP will be seen less of a financial opportunity for the company and more as a hassle for employees. HR and finance have to be aligned for optimal results, but the C-level team, with its bigger business perspective, must take ownership to ensure the success of the program.
2. An internal champion/point person smooths the way. This is an HR specialist who owns the program on a day-to-day basis. Someone who fully understands how it works and its implications, and can assist employees with comparative “shopping,” balance billing, and other issues, if the RBP vendor does not offer this service.
3. Comprehensive employee education is a must. Employees and their dependents need to clearly understand how RBP works. Employers should distribute tailored messages via relevant channels, before, during and after the launch of the RBP program. The materials should explain how the program works, employees’ rights and responsibilities under the program, and the tools they have access to make informed healthcare decisions.
4. Pay it forward. It takes invested employees to make RBP work. So it’s only right that when you begin to see the financial benefits, find ways to share part of the savings with employees, perhaps with enhanced benefits or lower contributions.

 

Reference based pricing can be a real boon in providing relief from the ongoing pressures of the healthcare industry – once plan sponsors understand how to do it right for everyone involved.