Could a new concept lower the high costs of medical care?
By Robert C. DeNinno Jr., Founder, Precision Benefits Group
When you spend a few decades in the insurance business, you will notice that cost-containment strategies from the past come back much like fashion trends. Yes, they may be slightly repackaged, however essentially, they are the same ideas marketed as something new. It has been a long time since we have seen anything . Reference-based pricing (RBP) may very well be the new concept we have been waiting for, and could have the ability to change our nation’s healthcare system and set it on the right path.
So, what is RBP and how does it work? Conceptually RBP is what it sounds like; an approach to cost containment that uses a referenced-based price for services provided, focused primarily on higher-ticket items such as hospital stays and outpatient procedures. The only universally accepted payment across most providers is the Medicare-negotiated price. RBP takes this price and agrees to pay a specific percentage over that cost for services.
This approach directly challenges the pricing models that have governed the medical industry for decades. Traditional healthcare pricing models are based on a discount percentage of services negotiated between insurance carriers and hospitals that allow for an extreme cost fluctuation. The bottom line is that providers bill insured patients significantly more than Medicare’s reference-based price for procedures. They say that they could not survive on Medicare’s price if everyone were to pay it and to insure profitably, they need to charge more for procedures in the private market.
It is important to understand that a reference-based pricing model is implemented without negotiating a contract with providers. The theory behind RBP is that if the price is fare, most providers will be willing to accept it without balance billing. Should the proposed payment be rejected, the RBP company will have a team of attorneys prepared to litigate.
Like any cutting-edge idea, RBP has its challenges. One thing history has taught us, regardless of industry, is that anytime you challenge an old way of doing things, it will be met with resistance, even if the new way proves to be more effective. While the percentage of litigation is not high, it does happen, and it is certainly a strain on anyone it touches. This can have a negative impact on corporate culture. Employers must understand that going into it and weigh the risks against the cost savings, which average 20 to 30 percent in the first year.
With the right consultant and TPA, an employer can set reasonable reference-based prices at levels that are accepted by most quality providers in the area. You can also have pre-negotiation and post-negotiation services in place to almost eliminate your risks of a lawsuit.
In its current form, RBP can be a good fit for the right company, the best prospects are companies that are already self-funded. However, if a company is experience rated and fully insured, it could be worth considering. Generally a company would need at least 100 employees to be considered. We have seen the implementation of RBP rise over the last several years, but it still appeals to a niche market. I feel the concept has the potential to be the corner stone for a better system overall. The key is finding the cost that works for all parties and building a system around it with insurers as part of the process.
Robert C. DeNinno Jr. is the founder of Precision Benefits Group. Before opening his own consulting firm in 2003, DeNinno spent the early part of his career working for a large insurance company calling on many of the major consultants in the Philadelphia area. Understanding the dynamics and bureaucracy of large insurance companies has been an asset that has served him well when negotiating for his clients.
Precision Benefits Group specializes in providing the most cost-effective Health, Dental, Life and disability plans for employers. They also have expertise in Executive Benefits, which includes buy-sell agreements, Individual Life, Disability and Medicare Insurance. The firm is headquartered in Philadelphia and has seen significant growth in Southern New Jersey in the past several years.