Solutions for employers
Reference-based pricing is a new way for self-insured employers to pay for employee’s medical costs. Instead of using a traditional insurance carrier’s network, employers simply pay hospitals a percentage in excess of Medicare’s reimbursement rate for the same service.
Why would employers adopt this plan? Generally, the benefit that insurers provide to employers are their network discounts for services. But with healthcare prices skyrocketing, employers are questioning whether this strategy provides enough value.
Here’s how hospital pricing usually works.
Hospitals start with “chargemaster” prices. This is what the hospital will charge an uninsured or out-of-network patient for their services.
These prices are typically very high, often two, three or four times higher than what these services cost in other countries.
Insurers negotiate off of the chargemaster price to include the hospital in their network and pass this discount on to employers.
But often, even a 50 percent discount is still well in excess of what Medicare pays for the same service. In other words, employers are still overpaying.
In many cases, employers are finding it more valuable, sustainable and transparent to pay in excess of Medicare, than to receive a discount off an inflated chargemaster price.
In other words, if a patient is billed $60,000, but Medicare accepts $10,000, the employer would pay 150 percent of Medicare, which is $15,000, and encourage the hospital to accept the payment in full.
However, the risk is balance bills—that the hospital will bill the employee for the remaining $45,000.
In these instances, reference-based pricing administrators typically take two approaches.
Balance billing support
Some consulting services provide patient advocacy services and legal support to employees who are balanced billed. Most administrators take the position that they have a fiduciary duty to be good stewards of the plan and protect patients against unfair billing practices while still providing a fair price for services rendered.
These cases can often be resolved without going all the way to court, but litigation does happen. As reference-based pricing plans become more common, we may start to see some legal precedents emerge around how these cases are handled when there are no contracts.
Some self-insured employers still prefer to have contracts in place with a hospital or physician network for services. Some employers have found they can obtain better value by pursuing these contracts directly, rather than through a traditional fully-insured plan.
Whole Foods has partnered with Adventist Health, Boeing contracts with MemorialCare Health System, and Lowe’s has deals with multiple hospitals to bundle pricing for common major surgeries.
Unlike insurers, these employers are starting the negotiation conversation much lower than the chargemaster price. Rather than pursuing a discount off of the chargemaster rate, employers are basing their negotiations around an excess of Medicare’s reimbursement. This often produces significant cost savings.
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