why all the buzz around reference based pricing?

welcome to brighter Copyright 2020 Mercer LLC. All rights reserved.

why all the buzz around

reference based pricing?

Copyright 2020 Mercer LLC. All rights reserved.

Speakers

Andrew HalpertClinical Innovation Leader

Tyler HarsheyUS H&B Actuarial Practice Leader

Wade SymonsNational Leader of Mercer’s Regulatory Resources Group

overview


Cost mitigation strategiesA continuum

*e.g. PCP assignment/selection, specialist referral requirements, etc.

Reference Based Pricing

Narrow/tiered networks

Centers of excellence

Direct contacting

Bundled payments

Onsite/near site clinics

Advanced primary care*

Telemedicine

Broad PPOLow

High


Comparing unit cost optionsSummary comparison

Broad PPO Telemed Advance primary care

Onsite/near-site

Bundled payments

Direct contacting

COEs Narrow networks

RBP

Cost savings potential

Impact on quality

Employee experience

Implementation effort

National applicability

Much lower Lower About the same Higher Much higher

Legend


Reference Based PricingBasics

Why

• Unit cost escalation and variation

• Considerable cost savings

What

• Setting the reimbursement rate at a fixed amount and requiring the member to pay above the reference price

How

• RBP Vendors apply the RBP formula

• If a provider balance bills, negotiation or litigation follows

• A TPA must be engaged to perform certain functions

Who

• Select Vendors

• HST

• ELAP

• AMPS

• 6 Degrees

• Sidecar Health

• National carriers have offered RBP for select services on occasion

Concerns

• Member experience

• Balance billing exposure

• ACA compliance


What is Reference Based Pricing?Reference Based Pricing (reimbursement) vs Reference Based Benefits

Reference Based Pricing (RBP) (also called Reference Based Reimbursement)

• Employer partners with a 3rd party vendor to establish a reimbursement rate that providers will receive for a service (e.g. % of Medicare).

• Individual plan member is responsible for normal OOP insurance related expenses

- Individuals may also face balance billing in the event the provider does not accept the terms offered

- No contractually agreed upon reimbursement rate between the medical provider and the employer

Reference Based Benefits

• Employer partners with their carrier/TPA to determine an amount they will cover for a service (reference price)

• Individual responsible for all charges above the set Reference Price in addition to normal OOP insurance related expenses

• Paired with transparency tools so responsibility is on the employee to choose care that will be covered by the reference price for that service

• Safeway/CalPERS both have model studies of this approach

• Carriers have largely backed away from supporting this benefit


Can RBP save money?

155%173% 176% 180%

210%220% 223% 224% 225% 228% 227% 226% 230% 233% 236% 236% 240% 245% 249%

270% 275% 278% 280%301% 310%

MI PA NY KY TN VT KS MO IL MA FL NM NC LA NH WA OH GA TX CO MT WI ME WY IN

Commercial rates expressed as a % of Medicare, 2017

Employers paid, on average, 241% of Medicare for hospital services in 2017 broken down as follows:

204% 293%Inpatient Outpatient

• Dotted line represents a reference price at 150% of Medicare• Amounts over the reference price represent savings

opportunity if the providers accept the payment


Two approaches to Reference Based Pricing

Replacement for select services

• Only for a subset of procedures which are elective and “shoppable”

• E.g. laboratory services, knee/hip replacement, colonoscopy, etc.

• Member has access to relative provider cost data

• Lower impact to member experience given focused universe of services in play

• Set reimbursement rate for a particular service

• Individuals may face balance billing

Full replacement

• Replacement of all services (professional & facility claims)

• Higher impact to member experience

• Set reimbursement rate for services

• Relative cost data is rarely based on contractual rates (as there are no underlying contracts

• Individuals may face balance billing

Reference based pricing can be applied to select services only or used as a full replacement to an existing medical plan.


Vendor market refreshProcess & key findings

Process Overview: • Prevalent vendors in the RBP space were issued an RFI

- Vendors included: AMPS, ELAP Services, HST, 6 Degrees, & Sidecar Health

• Questions focused on common employer concerns including market experience, structure, services covered, & member tools.

• Results are summarized on the following slide

Key Findings: • This strategy is predominantly being employed by small to midmarket size clients

• Vendors pay 120-150% Medicare, but final amount determined by client

• All vendors able to cover a subset of services or all services

• Most vendors offer support for members who are balance billed

• Some vendors offer price shopping tools


Vendor market refreshResults summary

AMPS ELAP Services HST 6 Degrees Sidecar Health

Average client size 714 members 667 members 1,200 members 175 members N/A

Structure • 150% Medicare• Discretionary threshold to

negotiate up to additional 25%

• Charges not to exceed 175% Medicare

• Higher of:• facility specific cost +12%• 120% Medicare

• Contracted provider relationships in key markets through partnership with Imagine Health

• Facility: ~140% Medicare• Professional Services: 120% to

160% • Percentage selected by each

client

• % of Medicare• Percentage selected by

each client

• Fixed indemnity reimbursement

• Reimbursement established by each client

• Fully Insured option

% of members balance billed

2 - 4% (balance bill)1% (collections)

10% (balance bill)4% (collections)

2% 1 - 6% N/A

Services covered • Facility only, full replacement, or service specific (i.e. dialysis)

• Facility only or full replacement



• Every medically necessary service, procedure, & drug (except maternity)

Member tools • Web & phone access to compare cost

• Web & phone access to balance billing support

• Web & mobile access educational tools

• Web, mobile, & phone access to balance billing support

• Web & mobile access to compare cost & quality

• Web, mobile, & phone access to balance billing support

• Phone access to balance billing support

• Web & mobile access to shop prices

• Phone access to balance billing support

Expanded RFI results available upon request

financial considerations


Financial context of RBP

• As of today, the national carriers to not offer a RBP solution

• To adopt a RBP approach, a separate TPA is required to process claims and they work with the RBP vendor for a specific subset of claims (i.e. facility claims)

• The TPA then works with other vendors for other claim types. Such as:

- A professional network

- A separate PBM for pharmacy

• For catastrophic claim protection, an external stop loss carrier will need to be considered

• All of these decisions can result in changes in projected overall plan cost

Pharmacy claims

Stop loss premium

Vendor fixed fees

Vendor variable fees

Facility claims

Professional claims

22%

11%

6%

1%

33%

27%

Pie chart depicts an illustrative cost by category breakdown for a 1,500 employee self-funded group


Sample RBP financial summary

• Exhibit above is an example of a RBP-based RFP financial analysis for a 1,500 EE self-funded group

• A detailed claims repricing was used to estimate impact of RBP on facility claims

• A discount and disruption analysis were reviewed for the professional network claims

• An evaluation of the current PBM contracts to those proposed was conducted for Rx claim/rebate impact

• Stop loss quotes were reviewed under the context of an RBP solution

• Vendor fees, both fixed and variable were compared

SAMPLE

$5,400,000 $5,670,000

$3,969,000 $4,252,500

$4,500,000 $4,725,000

$5,197,500 $5,197,500

$3,600,000 $3,960,000

$4,039,200 $4,039,200

$1,800,000

$2,160,000

$1,710,000 $1,800,000

$900,000

$900,000

$450,000 $810,000

$180,000 $189,000

$720,000 $90,000

Current Projected status quo RBP at 140% RBP at 150%

Facility claims Professional claimsPharmacy claims Stop loss premiumVendor fixed fees Vendor variable fees

compliance considerations


Compliance considerationsIssues arising out of recent lawsuits

Implied contract and unjust enrichment

Hospitals have argued that the plan created a contract with the hospital when services were provided, and enjoyed the benefit of the services, and therefore would be unjustly enriched by paying less than the “contracted” amount.

Breach of contract Because a contract is signed at admission to pay any balance, and payments made are not sufficient for the services provided, that contract has been breached.

Misrepresentation and fraud

Allegations that the plan misrepresented the payment amount as a percentage of the charges versus percentage of the RBP; statements that the hospital will accept the RBP payment as payment in full are fraudulent.

MOOP and inadequate networks

Claims that the plans violate maximum out of pocket restrictions because of the use of RBP, and create inadequate networks.

Unlawful trade practices

Hospitals have alleged that payments have been unjustly reduced and violated state law.

Breach of fiduciary duty

Hospitals have made claims that the plan document language did not reflect the RBP scheme, the claims process was arbitrary, and the RBP vendor was in engaged in prohibited transactions under ERISA.

Claims between the plan and RBP vendors

RBP reporting and fees were not accurate, and the plan suffered damages from collection actions.


Compliance considerationsState law issues

States may have laws which require hospitals to have rates regulated/approved by the state and would be deemed reasonable by law.

State case law may provide that a patient’s admission form is an express agreement to pay the hospital’s chargemaster rates and there is no ability to contest that agreement.

Additional state law restrictions on plans should be mostly limited because self-insured plans would be exempt due to ERISA preemption


ACA considerationsAvoiding accumulation towards OOP maximum

Type of service

Use of reference prices must be limited to nonemergency services and situations where the individual has sufficient time between identifying the need for care and obtaining it to make an informed provider choice.

Reasonable access

An adequate number of providers must accept the reference price to avoid unreasonable wait times and lengthy travel for care.

Quality standards

Procedures should ensure an adequate number of providers accepting reference prices also meet reasonable quality standards.

Exceptions process

An easily accessible process for granting exceptions to the usual reference-price plan payment must be available.

Disclosure

Information about services subject to the plan’s reference prices must be disclosed automatically (such as in summary plan descriptions).


ACA considerationsThree questions to ask

Can RBP models with “no network” comply with the ACA’s maximum out-of-pocket expenses rule? And how can the plan avoid applying balance billed amounts to the out-of-pocket maximum?

Can plans with these designs meet the 60% minimum value requirement for purposes of the ACA shared responsibility rules?

Given that RBP vendors often base their fees on a percentage of billed charges, how does a plan sponsor insure compliance with the ERISA fiduciary duty that fees paid from ERISA plan assets to third-party service providers are reasonable?

client stories


Mercer case study – Spokane

A Mid-Sized Mercer client and how they used Referenced Based Pricing to dramatically reduce costs.

Problem

• Employer with 150 employees

• Needed to reduce costs

Solution

• Moved to a RBP solution with AMPS and a TPA

Results

Kept in place for 3 years

Saving Factors:

• ~63% off billed charges over 3 years

• Flat stop loss renewal for year 3 (as of July)

Obstacles

• The three local hospitals pushed back and threatened to stop negotiating with AMPS

• Internal champion left company

• Company was acquired & removed the program


Mercer case study – Chicago

A Mid-Sized Mercer client and how they used Referenced Based Pricing to dramatically reduce costs.

Problem

• Employer with 2,000employees (1,300 enrolled)

• Needed to reduce costs

• Previously offered open access network through a national carrier

Solution

• Moved to a RBP solution with HST and a TPA

Results

Year 1: 15% reduction in paid costs YOY

Saving Factors:

• Lower reimbursement levels on facility claims

• 14% decrease in stop loss premiums for an equivalent level of coverage (same ISL deductible level)

• Employer improved pharmacy contracts

Obstacles

• Physician network was smaller than anticipated

• One local hospital pushed back on the plan, contacted the client directly to see if they could build their own network

• 3% of facility claims had balance billing escalations

• ~50% were successful negotiating with the provider (closed with no balance billing)

• ~50% are still open/ongoing, average time to close a case is 45 days

• 8 claims at that time were in process of seeking legal settlement

HST wanted it noted that 8 claims were referred to peer-to-peer legal review of which 6 were being looked at under a direct-to-employer contract thru HST


Mercer’s Point of View

• Reference Based Pricing is a unit cost strategy that can potentially achieve savings. It is one of many cost / network strategies employers can implement

• Challenges can include balance billing, collections and/or legal action directed at the member as well as other compliance concerns

• Given the ongoing and heightened cost challenges facing virtually all plan sponsors, we expect increasing interest in Reference Based Pricing as a strategic lever

• Proactively addressing issues regarding member experience through good communication and ongoing support are key to programmatic success.

• Reference Based Pricing dynamically relates to other unit cost strategies. In some instances, Reference Based Pricing has resulted in a direct contract if a provider agrees to formally accept the Reference Based Pricing rate. This can eliminate the threat of balance billing. An ideal strategy weighs cost savings, quality and member experience.


Conclusion and next steps

If you are interested in learning more, please contact your Mercer consultant.

• Strategy development• Market insight• Financial cost modeling• Vendor selection/RFP process• Program implementation• Member communication• Ongoing monitoring and assessment

questions & answers

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why all the buzz around reference based pricing?

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