Taxpayers win with medical reference-based pricing
Reference-based pricing, or RBP, is gaining traction around the U.S. for its potential to bring cost containment and price transparency to healthcare. RBP’s potential is so great, in fact, that many state governments are either implementing it or considering it. As it turns out, states are also having trouble dealing with the steady rise in healthcare costs. As their fund reserves dwindle, state governments are realizing that an alternative payment model is needed to stay in the black, and RBP is one of those alternatives.
RBP has already achieved an important victory in Montana, where the state transitioned to a reference-based payment model in 2016. Montana’s success with the plan has been so dramatic that other states are implementing their own version of it.
How RBP saved Montana’s health plan
Montana’s health plan for its state employees was in bad shape back in 2014. It was so bad that the state’s legislators demanded Marilyn Bartlett, the director administrator of Montana’s Health Care and Benefits Division, bring the plan’s cost down “or else.” The “or else” was never specified, but it’s fair to assume that it would have ended in hardship for state employees.
Fortunately, it never came to that, because Bartlett pushed an RBP plan model that the state’s hospital systems, one by one, agreed to. After negotiating with those hospital systems, Montana agreed to pay providers 234 percent of what Medicare offers, as Medicare’s reimbursement rates are generally considered modest. Montana’s plan was on the generous side for the providers, as many RBP plans keep the payout rate to 200 percent of Medicare or lower. However, the plan’s supporters believed that this was a good start in limiting costs and providing transparency.
Those supporters were proven right. In just two years, Montana’s RBP-focused plan saved taxpayers $15.6 million, compared to what they would have paid should the old, more expensive plan been kept in place. Montana’s new health plan has been so successful that its reserve healthcare fund has rebounded, to the point where the state has used it for other projects.
Other states are paying attention
Montana isn’t the only state in need of an alternative, as rising healthcare costs are draining state healthcare funds across the nation. A Pew analysis in 2014 demonstrated that those rising costs were a primary reason for the funding issues associated with Minnesota’s insurance program. Also exhausted by expensive insurance plans, Oregon and North Carolina are also implementing their own RBP plans, while several other states are considering it.
North Carolina’s plan is particularly ambitious, as it is projected to save taxpayers close to $260 million every year.
Why RBP works for (almost) everyone
Reference-based pricing’s cost containment power isn’t reserved for state health plans, as it can just as effectively reduce prices for employers. How is this possible?
- RBP gives employers more control over their healthcare costs – With traditional insurance plans, the employer pays what the plan tells them to pay, and insurance companies are notoriously secretive when it comes to how these prices are produced.With RBP, though, the employer determines what they will pay for any procedure, using Medicare as the anchoring point. In most cases, an RBP plan will pay a percentage or multiplier of Medicare, and this is easier for employers to forecast for budgeting purposes.
- RBP incentivizes efficiency in healthcare, which drives costs down – Some providers will profit less with an RBP plan, but efficiently run providers can make a consistent profit by keeping their overhead manageable. Providers are incentivized to bring their operating costs down, which then allows those providers to compete on price to a greater degree. The consumer benefits from this competition.
That’s what reference-based pricing provides on its own, but when it’s paired with a competitive, transparent marketplace, the power of RBP is immediately apparent.
MediBid’s competitive online healthcare marketplace, for example, elevates RBP to another level with price transparency and access to providers around the world. A limiting issue with RBP is that without price transparency, RBP plans can result in balance billing. Although rare, every instance of balance billing requires effort to resolve, and can shake an employee’s trust in their benefits program.
Providers bidding on healthcare requests on MediBid’s platform are required to submit a single price with every bid. This price includes the cost of the provider, the facility and the anesthesiologist. With this information, plan members can easily and quickly find a provider that will charge less than the plan’s allowable limit. MediBid can also develop RBP plans that split some of the savings with the plan member, which incentivizes consumer healthcare decisions. With MediBid, the employer gets a guarantee of no balance billing on that bundle of care.
With U.S. healthcare being more expensive than ever, even state governments must consider alternatives to the traditional insurance model. Reference-based pricing is the alternative that multiple states have already chosen, and it could be the start of a trend. Employers don’t have to wait to implement their own RBP plan, though. MediBid can reduce employer healthcare benefit costs by 38 to 60 percent, and reference-based pricing is a primary tool in achieving those savings.