Making Reference Based Pricing Work

Whether you refer to it as Reference Based Pricing, Medicare Reference, Cost Plus or something else, the important thing is to understand what it is and why it’s being used to lower health plan costs.

Health plans with reference based pricing provide high quality coverage at a lower cost by using Medicare fee schedules as a base. Then they negotiate with hospitals and physicians to determine an acceptable percentage margin over and above Medicare. Margins often fall within a range of 25% to 65%. The absence of PPO networks takes many of the “unknowns” out of play. Rather than operating at the mercy of networks that traditionally save their largest discounts for the largest health plans, reference based pricing takes the mystery out of network discounts by fixing fees for covered services. In addition to lower out-of-pocket expenses, members also gain the flexibility they need to search for a physician that meets their needs rather than settling for a smaller network in order to save on out-of-pocket expenses.

Experience Makes the Difference

Administration is always important when a health plan is self-funded. But reference based pricing requires much more than claims administration. Supporting a health plan with reference based pricing requires a TPA with the skills to make providers comfortable with this form of reimbursement and the resources to protect the plan against issues such as balance billing.

Many employers fear reference based pricing because of balance billing, which can occur when the established fee does not pay a provider’s bill in full and the provider chooses to bill the unpaid balance to the member directly. Even though resourceful TPAs point out that concerns about balance billing are often overblown, they typically integrate measures to protect members against it. In most cases, these include adding the services of attorneys or consultants to enforce the terms of the reimbursement agreement or negotiate a payment settlement with hospitals that may not be subject to negotiated reimbursement rates.

Experienced TPAs know that the competitive landscape for providers can often determine the potential for referenced based pricing in a given community. While it may not be appropriate for all employer groups, the ability to control future healthcare costs certainly makes it worth exploring.

ebso-cta

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