December 2018

Controlling Healthcare Costs With Reference Based Pricing

12/11/2018 8:00:35 AM

Controlling Healthcare Costs With Reference Based Pricing

by Tom Mafale, Executive Vice President and Chief Sales Officer

Tom Mafale, EVP and Chief Sales OfficerFacing the challenges of healthcare pricing is a pain point felt by businesses and their employees every single day. Among the most difficult of these obstacles is finding the best value for flexible health plan coverage when the pricing model for most hospitals is artificially inflated from the start. Through network contracts, a health plan’s pricing for hospital services can be negotiated, but it is still difficult to determine if you are truly achieving value.
As more small and mid-size companies opt to self-insure, finding a way to better control the cost of facility and hospital expenses has proven Reference Based Pricing (RBP) to be a smart solution.
To better understand this, it is important to know that the amount a healthcare provider charges does not necessarily show the actual cost of the services provided. Traditional health insurance network contracts allow each insurance provider to set pre-negotiated prices or discounts for which they agree to pay.
Medicare-negotiated prices are the exception to this because they are typically lower since Medicare has significant buying power and access to actual cost data that hospitals are required to report.
How Reference Based Pricing Works
With Reference Based Pricing, provider payments use Medicare reimbursements as a baseline, often from 140 to 180 percent of Medicare. Some hospitals bill as much as 500 percent of Medicare reimbursement to a traditional PPO plan, so the savings with RBP can be significant.
Sample Scenario
An employee has a Total Hip Replacement for which the hospital bills $70,000. The health plan negotiates a 20 percent discount, the final contracted-rate would be $56,000.  As a rule, the health plan does not cover the full cost of the procedure unless the patient has met their deductible and applicable out-of-pocket expenses. With Reference Based Pricing, the health plan would only pay about 50 percent of the contracted rate or $28,000.
The Smart Solution to Reference Based Pricing
HeartSmart's SmartDecision™ Reference Based Pricing Solution gives self-funded employers and others a way to control costs by directly negotiating with hospitals and caregiving facilities.

Here’s how it works. HealthSmart’s Concierge Team works collaboratively with our utilization management clinicians and RNs to first determine medical necessity, then the Concierge Team proactively engages the hospital or facility about the reimbursement, which includes a verbal conversation and a pre-pricing letter which outlines the expected reimbursement. The pre-pricing letter is also mailed to the hospital as final confirmation and acceptance of the expected reimbursement.
If the hospital is unwilling to accept the expected reimbursement or is unwilling to negotiate a fair reimbursement, HealthSmart’s Concierge Team will identify another hospital or facility that is equally suitable to the member. By proactively dialoguing with the provider and the member, the reference-based pricing process will help you steer clear of balance billing and potential litigation, while the plan saves significantly more money than through a traditional PPO network discount.

The real power of HealthSmart’s SmartDecision Reference Based Pricing solution is how it can avoid extensive legal issues. If an employee seeks medical care at a hospital that does not have a negotiated contract with the employer, that places the employee and employer at risk for litigation. There have been cases where the patient signs an agreement to pay the full price for services, which means the hospital could very well seek full payment, even though they accept lower payments for the same services from uninsured patients.

With HealthSmart’s SmartDecision Reference Based Pricing these cases can be avoided. HealthSmart’s Concierge Service would have sent a pre-pricing letter following the verification of benefits (VOB) call, and after the medical necessity determination.
The HealthSmart team would have proactively communicated with the hospital regarding the expected reimbursement upfront during the VOB call. If the hospital had not agreed, HealthSmart would attempt to negotiate. If terms could not have been met on a fair reimbursement the HealthSmart team would have redirected the patient to another facility, plain and simple.
One of the best advantages of Reference Based Pricing is the ability to know how much the cost will be for a specific procedure before having it done. Consider the benefits of HealthSmart and get on board with controlling healthcare costs. Give your employees high quality healthcare advantages with smart tools from HealthSmart.