Reference-based pricing is gaining momentum

This article was published on July 17, 2018 on Employee Benefit News, written by John Kern. Photo Source: Employee Benefit News.

In my 25 years in the insurance business I’ve seen many changes. But there’s always been one constant: Healthcare and pharmacy costs continue to accelerate and no regulatory action has been able to slow this runaway train. The problem is that we have focused on the wrong end of the spectrum. We don’t have a healthcare issue; we have a billing issue.

At the root of this national crisis is a lack of cost transparency, which is driven by people who are motivated to keep benefit plan sponsors and healthcare consumers in the dark. Part of the problem is that most cost-reduction strategies are developed by independent players in the healthcare food chain. This siloed approach fails to address the entire ecosystem, and that’s why we continue to lament that nothing seems to be working.

But that could change with reference-based pricing, a method that’s slowly gaining momentum.

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Here’s how it works.

Reference-based pricing attacks the problem from all angles and targets billing — which is at the heart of the crisis.

Typically, a preferred provider organization network achieves a 50-60% discount on billable charges. However, after this 50-60% discount, the cost of care is still double or triple what Medicare pays for the same service. For example, the same cholesterol blood test can range from $10 to $400 at the same lab. The same hospitalization for chest pain can range anywhere from $3,000 to $25,000.

Reference-based pricing allows employers to pay for medical services based on a percentage of CMS reimbursements (i.e. Medicare + 30%), rather than a percentage discount of billable charges. This model ensures that the above-mentioned hospitalization cost an employer $3,000 rather than $25,000.

“Negotiating” like Medicare

Reference-based pricing is becoming increasingly popular as more organizations consider the move to correct cost transparency issues as they transition from fully-insured to self-funded insurance plans.

One well-known and considerable example is Montana’s state employee health plan. The state employee health plan administrator received a notice from legislators in 2014 urging the state to gain control of healthcare costs. Instead of beginning with hospitals’ prices and negotiating down, they turned to reference-based pricing based on Medicare. Instead of negotiating with hospitals, Medicare sets prices for every procedure, which has allowed it to control costs. Typically, Medicare increases its payments to hospitals by just 1-3% each year.

The state of Montana set a reference price that was a generous 243% of Medicare — which allowed hospitals to provide high-quality healthcare and profit, while providing price transparency and consistency across hospitals. So far, hospitals have agreed to pay the reference price.

Of course, there is still the risk that a healthcare provider working with the state of Montana health plan, or any other health plan using reference-based pricing, could “balance bill” the member. But a fair payment and plenty of employee education about what to do if that happens could help you curb costs.

If balance billing does occur, many solutions include a law and auditing firm to resolve the dispute. In one recent example, a patient was balance billed almost $230,000 for a back procedure after her health plan had paid just under $75,000. An auditing firm found that the total charges should have been around $70,000, and a jury agreed. The hospital was awarded an additional $766.

Reference-based pricing is a forward-thinking way to manage costs while providing high-quality benefits to your employees. It’s one way to improve cost transparency, which may eventually transform the way that we buy healthcare.

Jury deems Centura Health $230K surgical bill ‘unreasonable,’ awards $766

This article was published on June 21, 2018 on BenefitsPro, written by Greg Land. Photo Source: BenefitsPro.

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A Colorado jury declared a hospital’s billing unreasonable, turning aside its lawsuit demanding almost $230,000 from a patient whose insurer already covered the cost of her surgery.

The patient had already paid her deductible and her insurer had paid the hospital about $75,000, which an audit deemed the “reasonable value of the goods and services” she had been provided, her lawyer said.

Lead attorney Ted Lavender of FisherBroyles’ Atlanta branch, who represented the former patient with office partner Kris Alderman and Denver partner Frank Porada, said testimony in the case revealed just how murky hospital billing can be and how some patients are targeted for whopping bills to make up for those who pay substantially less for the same services.

“The hospital experts explained how the rates get set, and it ultimately devolved into this idea that paying patients have to pay more to make up for nonpaying patients, the uninsured, those on Medicare and Medicaid, who don’t pay full price,” Lavender said.

In his client’s case, records showed that surgical spinal implants cost the hospital about $31,000.

“They turned around and charged $197,640 for those items on the hospital bill,” said Lavender. “That is a 624 percent markup.”

The hospital is represented by Traci Van Pelt, Michael McConnell and David Belsheim of Denver’s McConnell Fleischner Houghtaling.

Van Pelt said they will file posttrial motions and appeal the verdict.

The case involved back surgery performed on Lisa French in 2014 at St. Anthony North Health Campus, north of Denver. Hospital filings said French’s surgery was to relieve back pain and was “considered elective.”

French’s employer had a self-funded ERISA insurance plan, and she was told prior to surgery that she would owe $1,336, of which she immediately paid $1,000.

French’s contract included phrasing that she “understand[s] that I am financially responsible to the hospital or my physicians for charges not covered or paid pursuant to this authorization.”

St. Anthony’s billed her insurance plan $303,888 after the surgery and for two presurgical consultations based on its “chargemaster” billing schedule, an industrywide practice whereby providers list all the prices they charge.

As Lavender explained, French’s employer’s insurance plan contracts with a health care consulting firm, ELAP Services, which audits claim costs and negotiates with providers for self-funded insurers. On its website, ELAP says it “assists in plan design and jointly establishes limits for payment of medical claims that correlate to the providers’ actual cost of services.”

ELAP audited the fees St. Anthony’s charged French and determined that her actual charges came out to about $70,000, Lavender said. Between her co-pays and the insurance plan, St. Anthony’s was paid $74,597.

St. Anthony’s parent company, Centura Health Corp., sued French in state District Court in Adams County, Colorado, seeking an additional $229,112 in 2017.

ELAP provides legal representation to clients facing suit pursuant to its services, and Lavender, Alderman and FisherBroyles Denver partner Frank Porada were assigned French’s defense.

According to defense filings, Fishers contract with St. Anthony’s contained no stated price and was thus ambiguous.

The hospital was already paid the reasonable value for the services, according to a defense account. The chargemaster rates are “grossly excessive and defendant had no choice but to sign the Hospital Service Agreement, making them unconscionable” and thus unenforceable, the defense said.

During a six-day trial in Brighton, Colorado, before Judge Jaclyn Brown of Colorado’s 17th Judicial District, Lavender said the entire dispute was over the prices and methodologies medical providers use.

“We had one expert, and they had three,” said Lavender. “They spent $100,000 on experts.”

“The reality is that there’s nobody to say how much they’re charging is reasonable,” Lavender said.

The jury made that determination for French on June 11, answering “no” when asked whether her bills were reasonable. The panel agreed she had a contract with St. Anthony’s to pay “all charges of the hospital,” but that those charges were “the reasonable value of the goods and services provided,” not those set by the hospital’s chargemaster.

The jury awarded the hospital $766.74.

The hospital’s attorneys did a good job explaining how hospitals have to shoulder the burden for underpayments and nonpayment by other patients, Lavender said.

“They know they’re not going to collect from everybody,” he added. “But in the end, it just reveals how antiquated and nontransparent the system is, because nobody understands the bill.”

Value Based Pricing Gaining

While plenty of folks talk about value based, or reference based, pricing as though it’s a fad that has come and gone, we’re finding more interest from employers all the time. This may be because many like to brand it as another form of disruption, but regardless of how you brand it, value based pricing is becoming a more important part of our value proposition all the time. It’s becoming more widespread because it enables a self-funded plan to limit costs to an extent that few other measures, if any, can match. This is primarily because by negotiating in advance with hospitals to accept a schedule of fixed payments for certain healthcare services, carrier-sponsored provider networks can be bypassed.

The fact is that while value based pricing may be considered disruptive by many hospitals, it works. It is a transparent approach that can save a lot of money for self-funded health plans and their members. And finding ways to help self-funded employer plans provide high quality, high value healthcare to their members is our most important job.

Debunking Three Myths About Reference-Based Pricing

This article was published on May 9, 2018 on BenefitsPro, written by Steve Kelly, co-founder and CEO of ELAP Services. Photo Credit: BenefitsPro.

The most successful business owners and employers surround themselves with advisers who are experts in their field and can guide companies on making sound business decisions. In an industry as complex as health care, brokers are relied on as trusted counsel when it comes to choosing the best benefit options. For brokers to serve as a knowledgeable authority and stay relevant in today’s diverse benefits marketplace, they must be educated on the facts.

Reference-based pricing, also known as metric-based pricing, is a topic that is sometimes misrepresented or misunderstood in the broker community. Astute benefits professionals recognize that reference-based pricing is a viable cost-containment opportunity, and there are good reasons why it’s growing in popularity for self-funded employers. After all, when was the last time brokers could offer employers a solution with the potential to save up to 30 percent on their total health care spend?

Guiding clients in new territory

Significant savings aside, some business owners may be uncomfortable with the idea of leaving the familiar insurance atmosphere behind. This is when brokers can exhibit their expertise and help their clients adequately plan for and address potential risks. Brokers can also rely on experienced partners to assist with the design of a health plan that makes the most sense for their clients.

Being engaged and informed enables brokers to encourage clients to push past their initial discomfort and fully understand the value of reference-based pricing. Here are some common myths that surround this type of health plan.

Myth 1: Balance billing only occurs on plans with reference-based pricing.

One of the most common myths about reference-based pricing is that clients who utilize the solution will put their members at financial risk because of balance billing. In today’s health care landscape, more Americans are struggling with medical expenses. Among Americans ages 65 and younger who have insurance, 20 percent said they had problems paying medical bills within the past year. In addition, out-of-network providers and specialists are operating at in-network facilities, and this results in unexpected balance bills.

Balance billing, and variations of that practice, is actually quite common and not limited to reference-based pricing plans. According to a new national survey of 2,200 adult U.S. residents by the Consumer Reports National Research Center, nearly one-third of privately insured Americans received a surprise medical bill in the past two years where their health plan paid less than expected.

If a broker selects a proficient and experienced reference-based pricing partner, the likelihood of balance billing is reduced because the solution is focused on fair payment to medical providers. In the instance when a reimbursement is not accepted, the right partner will provide a strong member advocacy program that backs members, advocates for their best interests, and drives toward fair and agreed-upon outcomes for all parties.

Myth 2: Providers will deny care to patients who have reference-based pricing plans.

First and foremost, the Emergency Medical Treatment and Active Labor Act (EMTALA) prohibits medical facilities from denying care to any patient in an emergency. In non-emergency situations, companies that utilize reference-based pricing and provide a reasonable reimbursement with a fair profit margin to medical facilities find that the vast majority accept the payment. On rare occasions where access is denied, experienced reference-based partners can negotiate a resolution for that specific episode of care.

Partnering with a reference-based pricing solution that includes line-by-line, in-depth auditing for each medical service is another way brokers can be confident that medical facilities will be compensated fairly and promptly. A quality provider of reference-based pricing solutions will also guide brokers appropriately regarding client fit and regional market conditions. The existence of collaborative relationships with area health systems is another indicator of a reference-based pricing partner that is doing their due diligence to prioritize fair provider reimbursement and minimize push back.

Myth 3: Employers using reference-based pricing will end up battling hospitals.

It’s worth repeating that the vast majority of medical providers will accept adjusted payments that are calculated using valid metrics to determine fair reimbursement amounts. If a facility does not accept a reference-based payment, there are many steps before the situation escalates to legal action.

In fact, sitting down and speaking with a medical facility can help lead to positive resolutions for everyone involved. When community businesses and hospital systems come to the table, there are significant advantages for both the health systems and the employers. Working together to find solutions creates the opportunity for a positive ripple effect of benefits.

If a resolution cannot be reached, it is important that brokers and employers are partnered with a reference-based pricing solutions provider with a strong patient advocacy sector. A quality solution provider will assure that members and employers are protected against unfair billing, collections and potential litigation.

Grow your business with reference-based pricing

With the correct information and tools to reduce risk, brokers can guide well-suited clients to utilize reference-based pricing as a tool to reduce health care spend, which can help business owners and employers transform their business. Offering reference-based pricing as a solution can help brokers remain in the center of the health care benefits discussion and help them to grow their business, attract new clients and retain current clients.

Being knowledgeable about reference-based pricing gives brokers an opportunity to showcase their expertise to clients, and choosing a proven partner enables them to offer a viable solution with significant cost savings.

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Reference-based pricing: where do carriers go from here?

This article was published May 10, 2018 on BenefitsPro.com, written by Alex Tolbert.

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Photo Source: BenefitsPro

Back in 2015, the big topic in health care was insurance company consolidation. This was the year Anthem announced plans to acquire Cigna, and Aetna put out a bid for Humana.

Mergers across four of the country’s biggest insurers would have significantly reshaped the U.S. insurance landscape, and not everyone thought it was a good idea. There were concerns that consolidation would lead to rising costs for consumers. In fact, CEO of electronic medical record company athenahealth, Jonathan Bush, had this to say to CNBC about the potential deals:

“These [mergers] are what happen when industries essentially die. Hopefully what will happen is there will be disruptive innovation and the role of the traditional health insurance company will be obsolete.”

Here in 2018, we know neither of these mergers took place, after facing antitrust scrutiny from the Department of Justice. But even though the mergers fell through, Bush still may have been spot-on about innovation coming along and disrupting the current health insurance business model.

That disruptive innovation is reference-based pricing. This strategy for paying for health care is gaining ground, affecting carriers’ value propositions. It isn’t yet clear whether this reference-based pricing will, as Bush predicted, make insurance companies obsolete, but it could change the face of the health care landscape in the U.S.

What is reference-based pricing?

Reference-based pricing is a new payment model for employer-sponsored benefits plans. Rather than working with a traditional insurance carrier to negotiate price discounts at hospitals, self-funded employers using a reference-based pricing strategy pay hospitals directly, typically in excess of Medicare.

For example, if an employee receives a bill for $20,000, but Medicare would pay $10,000 for the same service, the employer might pay $14,000, and encourage the hospital to accept the payment in full.

To understand why this is so disruptive to insurers, we have to look at how things work now.

Insurance networks

Provider networks are a key part of insurers’ value proposition to employers. In the current health care system, hospital pricing is based around what’s called a chargemaster rate. These prices are not typically shared publicly. Insurance companies negotiate discounts off the chargemaster rate, and pass these discounts on to employers. Insurers compete with each other based on which hospitals are in their “network,” and how significant their discounts are off of the hospital chargemaster prices.

Employers have traditionally been incentivized to select insurers that have broad networks, because patients who visit out-of-network facilities are often charged the full chargemaster rate. But as networks have narrowed and prices continue to rise for both employees and employers, more business leaders are starting to question whether the traditional insurance network discount is meaningful. If you don’t know the amount from which you’re getting a discount, then how can you judge the value?

More employers are finding they can get better value for their health care dollar by negotiating with hospitals directly, and negotiating up from Medicare’s rate, rather than down from the chargemaster price.

By eliminating a key part of the carrier’s value proposition, reference-based pricing represents significant disruption for insurers’ business models.

Where do carriers go from here?

As employers are increasingly demanding more transparency and rationality in health care pricing, insurers are looking for a way forward.

Perhaps recognizing that they will no longer be competing on provider network and group plans alone, carriers like UnitedHealthcare, Humana and Aeta have been rapidly diversifying their service lines by acquiring health care service companies.

For example, witness the acquisition by UnitedHealthcare’s Optum segment of DaVita, and Humana’s recent acquisition of Kindred Healthcare. Carriers are also pursuing retail affiliations—CVS plans to acquire Aetna, and Humana and Walmart are reportedly in talks to partner.

The role of insurers isn’t obsolete, but as employers see less value in networks, carriers will have to compete on different measures. This could prove hard to do. If so, reference-based pricing may turn out to be the disruptive innovation Jonathan Bush was predicting all along.

How a Broken Healthcare System Impacts People’s Lives

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As a Third Party Administrator, employers and plan members count on us to make their health benefits work. While that sounds easy enough, it can be anything but easy when ordinary working families are forced to face exorbitant hospital bills.

One couple recently found themselves confronted with a very difficult situation when their son needed a medical procedure that would be considered routine in ordinary circumstances. However, what happened was anything but ordinary. The hospital rejected the couple’s insurance, saying that because they had gone out of network, they would be required to pay $9,000 up front for their child’s tonsillectomy and another $10,000 or more immediately following the procedure.

Their health plan, which we manage for their employer, has been partially self-funded for several years. In addition, the employer recently replaced their PPO network with reference based (or cost plus) pricing, a strategy that enables the plan to define pricing limits and ensure a much more transparent view of healthcare expenses.

In this particular case, we worked with the parents, their regular pediatrician and ELAP Services to arrange for the procedure to be performed at a local, affiliated surgical center – at a fraction of the price quoted by the original hospital. Their total cost was less than $2,000, approximately one tenth of the cost the original provider intended to charge. It took a great deal of work and cooperation to achieve this outcome, but the case serves as an excellent example of what can be done when a health plan has been designed to encourage open dialogue between patients, trusted advisors and providers.

More and more, hardworking Americans are facing extraordinary healthcare costs and struggling to pay their bills. NerdWallet Health conducted a study and found that a debt collection agency will contact 1 in 5 American adults regarding medical debt. This means there are approximately 51 million people who are unprepared and unable to deal with the rising cost of healthcare.

Another aspect of healthcare that is seldom discussed is the challenge facing small and mid-sized employers struggling to provide adequate healthcare to their workers. Rising costs have made it nearly impossible for many companies to hire new employees or invest in their businesses in other ways. Sadly, millions of Americans have seen their standard of living eroded by the cost shifting that has occurred.

As these parents and their employer have discovered, alternatives like reference based pricing are helping to build bridges between employers and hospitals. “While a good deal of experience is required to design these plans and manage them over time, the opportunity for cost savings is so significant that more and more employers are moving in this direction,” said Brooks Goodison, President of Diversified Group. One of New England’s most experienced Third Party Administrators, Diversified Group has responded to the growing demand. “With or without reference based pricing, Diversified has long been committed to pursuing mutually rewarding partnerships between employers and community-based health care facilities,” added Goodison. “Open communication, cooperation and innovation by businesses and healthcare providers are musts if the issue of runaway healthcare costs is ever going to be resolved.”

As cases like this have long shown, the price for a given healthcare procedure in the same locale can vary greatly, often with little difference in quality. When employers use reference based or cost plus pricing, the plan and area hospitals typically agree on a pricing schedule for covered benefits by using Medicare plus a predetermined margin. Visit Diversified Group online to learn more about reference based pricing and view a brief educational video by ELAP Services, Inc.

The New Year’s Resolution You Should Keep: Managing Your Healthcare Costs

The article below was published on January 3, 2018 by DigitalDealer, written by Contributing Writer Steve Kelly.

Photo Source: DigitalDealer

We came across this article written by Steve Kelly, co-founder and CEO of ELAP Services. It discusses one common theme that all of us at Diversified Group hear more and more from not only our auto dealer clients, but from a growing number of our clients – the fact that amidst increasing healthcare costs, employers are seeking out better, less expensive ways to offer healthcare to their employees. Making the switch from a traditional health insurance plan to self-insurance creates the opportunity to achieve the savings they are looking for. We have been proud to partner with ELAP Services for many years and can attest to the results discussed in his article, which can be read below.

January is the month of new beginnings, and of course, New Year’s resolutions. But beyond setting a personal goal this year, what if you decided to use your energy to set your dealership up for success instead? What if your New Year’s resolution was to finally find a better, less expensive way to offer healthcare to your employees?

Each year auto dealers around the country feel the squeeze of rising healthcare costs. Insurance premiums for family coverage have increased by 55 percent since 2007, and while these costs are felt by the individuals and families on the plan, the employer who sponsors the health plan often carries the financial burden. Meanwhile, the total operating profit for the average dealership decreased 43.5 percent from 2016 to 2017, proving that healthcare costs and profits are out of sync, and healthcare costs have a substantial impact on dealers trying to run profitable businesses.

Becoming fed-up with the increasing costs year over year, more businesses are looking for viable, cost-saving alternatives to PPOs and are increasingly turning to self-funded or self-insured plans. Self-insurance is when an employer takes the money it would pay an insurance company and instead pays healthcare providers directly for medical claims.

According to the Employee Benefit Research Institute, the number of businesses offering self-insured health plans has increased by nearly 37 percent from 1996 to 2015. This huge increase proves that employers are trying to find the right, less expensive healthcare solution for their business. But, if you are considering self-insurance to forgo the hassles and costs of a PPO, you are missing the key component to assisting with risks of self-insurance. Self-insurers can really only maximize their health plans when paired with the reference-based pricing method.

The reference-based pricing method is the assessment and payment of medical claims based on the provider’s actual cost to deliver the service or by utilizing Medicare cost data as a benchmark. This means that rather than paying a discount off of an unknown price, an employer knows the true cost and pays a fair price for the service. Reference-based pricing helps remove the curtain of PPO “discounts,” leaving you with a fair and reasonable price to pay for a medical service.

Quite frankly, changing from a traditional healthcare plan to self-insurance with reference-based pricing could be a total game changer for your dealership. Self-insurers who use reference-based pricing benefit from significant cost savings in comparison to their PPO discounts. With the help of a partner, employers pay their healthcare bills going line by line through the expenses and with an understanding of the actual cost it takes to provide a medical service, like they would any other business cost—and in the way healthcare was meant to be paid for. On average, with the right strategic partner, you can expect to save up to 30 percent off your total healthcare spend in the first year.

So, this year, rather than throwing in the towel a few weeks in, like we often do for New Year’s resolutions, resolve to empower yourself by learning the facts and evaluating if your current healthcare plan is truly offering you the value it promises. Identifying a better, less expensive way to offer healthcare to your employees will allow you to do something novel like put the savings back into running your dealership.

About the Author

Steve Kelly is the co-founder and CEO of ELAP Services, a leading healthcare solution for self-funded employers across the U.S. He is a recognized expert and frequently called-upon speaker in the insurance, employee benefits and risk management industry, bringing more than three decades of experience solving his clients’ complex healthcare challenges.

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