Montana Adopts Reference Based Pricing Strategies

Article as seen on July 15th, 2016 in

Montana adopts reference based pricing model for state employees. Will other states follow?

Montana says health plan contracts will save $25 million

From Tribune reports 3:27 p.m. MDT July 8, 2016

Montana will save more than $25 million by the end of 2018 through changes to the state of Montana’s health care plan, Gov. Steve Bullock said.

“This change will save taxpayers and employees money, which means more money in the hands of hardworking Montanans being spent on Main Streets all across the state,” Bullock said. “As the largest state employer, it is critical that the state of Montana leads the way in managing rising health care costs and do so in a fiscally responsible way.”

The state of Montana is implementing transparent pricing, a new way of paying state medical costs, based on paying a multiple above what Medicare pays for health care services.


Benefis and Montana insurance plan contract talks fail

“Until we manage health care costs, they will continue to eat away at employee salaries and family budgets,” said Sheila Hogan, director of the Department of Administration. “This change will put money into the pockets of our employees for everyday needs.”

Contract talks with Benefis Health System in Great Falls failed and Benefis is the only one of the top 10 health care providers in Montana that is not participating in the state health plan program.

Under the former model of payment, hospitals and facilities could charge the state’s health plan dramatically different amounts for the same service. For example, a hospital in Montana could charge $25,000 for equivalent knee replacement surgery, while another charged more than $100,000. The new form of reimbursing hospitals changes that model. Allegiance is contracting with facilities for more comparable costs by anchoring pricing to a national point of reference, Medicare, then paying hospitals a multiple above that. This will make medical costs more predictable, consistent and comparable among facilities.

“This change in reimbursement method is game-changing for the state of Montana,” said Ron Dewsnup, president and general manager of Allegiance.

Transparent pricing is one of the upcoming efforts by the state’s Health Care and Benefits Division to manage health care costs. An additional resource, Healthcare Bluebook, will be available through Allegiance later this summer, which allows members to compare medical price ranges and quality.


Interest in Reference-Based Pricing Grows

Reference-based pricing (RFB) strategies are increasing in popularity as employers seek more affordable options for their health benefit plans. Although PPO networks and their negotiated discount agreements have been in place for decades, they provide very little transparency to the true costs of services provided.

How can an employer control health care costs when the base charges for services for the same procedures can vary dramatically between physicians and hospitals in the same region? For example, depending upon which hospitals is providing the service, hip surgery can cost anywhere from $20,000 to $100,000 (all incorporating PPO discounts).

Reference-based pricing is a strategy that drives plan enrollees to find and use a provider (usually a hospital) that has agreed to accept a fixed amount for certain procedures. These amounts can be directly negotiated with providers using the average fees charged within the same geographic region by providers of similar training and experience or, more often, calculated as a percentage over and above current Medicare reimbursement rates.

The U.S. Department of Health and Human Services (HHS) is comfortable with this new approach, as it provides much greater transparency to the true cost of services – with the caveat that care must be taken to ensure plan participants are provided with “adequate access to quality providers” and are not just forced to choose the least costly alternative.

A Perfect Complement to Self-Funding

Self-funded plans are particularly well-suited to this approach and many TPAs are already offering their clients alternatives that incorporate some form of reference-based pricing. With experienced plan administrators guiding the implementation and administration, self-funded employer groups can finally know the true cost of care – something that few fully-insured organizations have ever been able to identify.

Although there is a concern that plan participants may be “balance billed” – charged the different between the provider’s retail or network pricing and what they are being paid under the RBP agreement – some TPAs take steps to ensure plan members are protected against this.

Far outweighing these considerations is the potential for savings. It is not uncommon for reference-based pricing to yield savings in the range of $150,000 for every 100 covered employees. To learn more about reference-based pricing alternatives, contact Diversified Group today.