According to a public-private partnership launched by HHS, the percentage of U.S. healthcare payments tied to value-based care rose to 34% in 2017, a 23% increase since 2015. Fee-for-service Medicare data and data from 61 health plans and 3 fee-for-service Medicaid states with spending tied to shared savings, shared risk, population-based payments and bundled payments were examined in the analysis.
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.
With More Families Forced to Choose Between Healthcare & Housing, It May Be the Future
As a TPA, employer groups count on us to make their health benefits work. While that sounds easy enough, it can be anything but easy when ordinary working families face hospital bills they can’t handle.
One couple recently found themselves confronted by a hospital that rejected their coverage, demanding an advance payment of $9,000 for their child’s tonsillectomy, with a $10,000 balance due following the procedure. Because the employer has replaced their PPO network with Value Based Pricing (VBP), we were able to work with the parents, their regular pediatrician and ELAP Services to arrange for the procedure to be performed at a local, affiliated surgical center. Their total cost was less than $2,000 – a fraction of the original price.
While a great deal of work and cooperation were required to achieve this outcome, Value Based Pricing made it possible, by defining pricing limits in advance and encouraging dialogue between the patient, the provider and us as the TPA.
In a time when too many hardworking Americans are facing extraordinarily difficult healthcare decisions, helping employers and hospitals agree on pricing schedules for covered benefits may be the only way to keep quality healthcare within reach for small and mid-sized employers and the workers they depend on.
This article was published May 10, 2018 on BenefitsPro.com, written by Alex Tolbert.
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.
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.