1. Reference Based Pricing: A Healthcare Payer Strategy That Makes Sense
Dennis A. Casey
Consultant, Gilbert’s Risk Solutions
August 9, 2018

2. Reference Based Pricing (RBP)
What is RBP?
Why does RBP exist?
Who is doing RBP?
Where will RBP go from here?
How will Plans and Providers adapt to RBP (Can it make sense)?

3. What is Referenced Based Pricing?
RBP is that payment process where an ERISA Plan establishes its own Maximum Allowable Charge for goods or services delivered to its Participants by Providers.
This Maximum Allowable Charge becomes the Reference Point (expressed as a dollar amount, a fee schedule or a percentage factor of a base ) whereby claims are processed and paid by the Plan.
The Plan is free to establish its Reference Point as broadly or narrowly as it desires, i.e. a Reference Point for a specific prescription drug or drugs, specific orthopedic procedures, elective surgeries, Out of Network services, or the basis for all payments delivered under the Plan.
This should not be confused with UCR or U&C Plan provisions that would be dependent on outside data sources or marketplace influences.

4. What is RBP? Most common practices:
Establishing a flat dollar amount the Plan will pay for a specific procedure, i.e. $25,000 for a knee replacement.
Establishing a flat dollar amount the Plan will pay for a 30 day supply of a specific drug.
Establishing a specific fee schedule (sometimes by region) that the Plan will pay for covered services.
Establishing a percentage above Medicare that will be the maximum allowable under the Plan, i.e. 150% of Medicare.
In all of these examples it is presumed that the members will be responsible for charges billed, if any, by providers in excess of the RBP maximum allowed expense.

5. Why does Reference Based Pricing Exist?
The Roberto Durand Effect “No Mas!”

6. Why RBP?
Current healthcare cost and the rate of growth of such cost is unsustainable for employers, participants and their Plans. Disease state and focused clinically driven Population Health Management will reduce cost but take time to effect ultimate impact on Plan costs. Wellness programs do not reduce Plan costs. Employers and Plans are looking for a “Defined Compensation” health benefit model that works in terms of modifying patient behavior. The Affordable Care Act did nothing to make care affordable for a traditional Plan.

7. How do we measure or demonstrate this failure?
Why RBP?
Cut to the chase – the real problem is the price being charged for the services rendered.*
This situation is a reflection of the failure of the predominant healthcare financing model – the PPO – in terms of controlling the cost of delivering services.
“We cannot solve our problems with the same thinking we used when we created them” – Albert Einstein
How do we measure or demonstrate this failure?
*See :The Pricing Of U.S. Hospital Services: Chaos Behind A Veil Of Secrecy
by Uwe E. Reinhardt

8. Why RBP?
Comparative cost of Healthcare delivery in USA vs. other developed nations*
The US spends over $8,000 per capita and almost 19% of its GDP on healthcare annually
The next highest amounts are $5,400 per capita in Norway and 12% of GDP for The Netherlands
The median levels among developed nations are $3,200 per capita and 9.5% of GDP.
BUT!
* Commonwealth Fund report - Explaining High Health Care Spending in the United States: An International Comparison of Supply, Utilization, Prices, and Quality

9. It should be cheaper in the United States!
Why RBP?
It should be cheaper in the United States!
Our overall population demographics are better than all developed nations
Our rate of population aging is lower
Our percentage of the population that are smokers is significantly less
Our access to doctors and hospitals is higher
Our hospital discharge rates per 1000 are lower than median levels of other developed nations
Our cost of generic drugs is significantly lower
Our access to diagnostic imaging is two to three times that of other developed nations – a state of overcapacity in most areas
Only our obesity levels (34% US vs. 16% in other developed nations) are an indicator for higher cost versus other nations

10. Why RBP? What About Costs?
Relative to GDP and per capita spending there is no detectible difference in what it costs to deliver care in the United States vs. other developed nations.
The relative costs of training, nursing care, supplies, support staff, property and other factors are the same or lower in the United States.
USA medical malpractice and litigation expenses, while not insignificant in terms of dollars (around 2 billion annually), only amount to about 1% of annual healthcare spend. As a comparison, eliminating the overuse of anesthesiologists for healthy screening colonoscopies alone (a practice no other developed nation condones) is estimated to produce 1.1 billion annually in healthcare savings.

11. Why RBP? We can see this phenomena demonstrated in this country.
So why is it cheaper elsewhere?
Biggest single factor – “(Other countries) use a common fee schedule so that hospitals, doctors, and health services are paid similar rates for most of the patients they see.”… “There are few methods for controlling rising costs in private insurance in the U.S.”
– Mark Pearson head of the Division of Health Policy at The Organization for Economic Co-operation and Development
We can see this phenomena demonstrated in this country.

12. Why RBP? New Jersey and Maryland
Average Hospital Cost to Charge Ratio*
Avg. Ten Highest
Maryland % 153.5%
New Jersey % 861.5%
Why?
Maryland is the only state that imposes broad price controls on the delivery of hospital services. A scenario unlikely to be repeated elsewhere. A marketplace based solution will therefore be required.
NC % %
National % ,111.7%
*Data compiled by The Institute for Health & Socio-Economic Policy

13. Who is doing Referenced Based Pricing?
WellPoint
BCBS of Oklahoma
BCBS of Minnesota
BCBS of Illinois
CALPERS
Safeway Foods
Anthem
First Health (Stratose)
AMPS
ELAP
Palmetto Primary Care Physicians
Multiple TPAs in Texas, Ohio, Minnesota, Georgia, New York, North Carolina and elsewhere
AON Hewitt survey June 2015 of 800 mid to large employers found 8% currently using RBP strategies but 62% intended to deploy such programs in 2016.

14. Where will Reference Based Pricing Go From Here?
What additional “New” benefits payment strategies exist that are of interest:
Accountable Care Organizations (ACA supported)
Shared Savings Programs
Episodic Payments
Comprehensive Care Payments
Other Value Based Payment Programs
For a more complete discussion of these initiatives please see – Better Ways to Pay For Health Care: A Primer on Healthcare Payment Reform

15. Where will RBP Go From Here?
Shared Savings Programs: Pay for Performance – not payment reform. Transfers risk to providers without resources. Rewards high spenders – not high performers Not sustainable

16. Where will RBP Go From Here?
Episodic, Comprehensive Care, or other Value Based Payment strategies
If properly implemented can have a significant impact on the cost and quality of care!
For a more complete discussion of “Value Based” strategies see: From Volume to Value – Transforming Health Care Payment and Delivery Systems to Improve Quality and Reduce Costs – Published by The Network for Regional Healthcare Improvement
OK WHEN?

17. Where will RBP Go From Here?
Common Barriers to Payment Reform*
Pervasiveness of Fee for Service
Holding Providers Accountable for costs they can’t control
Lack of Data for Setting Payment Amounts
Lack of Patient Engagement
Poor Quality of Care Measures
Negative Impacts on Hospitals
Lack of Neutral Coordination Mechanisms
*See Center for Healthcare Quality and Payment Reform for more in-depth discussion of these and other barriers to Payment Reform.

18. Where will RBP Go From Here?
From an Employer/Benefit Plan perspective the current Fee for Service/PPO model is broken
Employers and Participants can’t wait for Providers, Legislators, Regulators etc. to reach consensus on reform – the “fix” is needed now
RBP can provide common ground for fee for service reimbursement with an element of episodic reimbursement – in the specific example of the Medicare DRG methodology
RBP can be fair and transparent for all parties involved

19. Where will RBP Go From Here?
Linking RBP strategies with other benefit developments
RBP and Centers of Excellence
RBP and ACO
RBP and Domestic Medical Tourism
RBP and Exchanges

20. How will Plans and Providers adapt to Referenced Based Pricing?
Should go great!

21. How will Plans and Providers adapt to RBP?
Can (should?) hospitals and other providers adapt to RBP? “According to L.E.K. Consulting’s analysis, the net impact of legislative, structural and demographic factors will be materially negative on most hospitals in the country.” – L.E.K. Consulting in Hospital Economics and Healthcare Reform: No Free Lunch (In Fact, I Might Go Hungry) “Healthcare is a low-margin economic activity. Almost a quarter of American hospitals are already losing money” - Delos Cosgrove, M.D. CEO and President Cleveland Clinic in his article The Great Consolidation Begins

22. How will Plans and Providers adapt to RBP?
Balance Billing
Serious issues for Members and Plans
The Data:
All Claims Incurred and Paid from Sept.1, 2013 through March 31, ,742
All Claims subjected to Balance Billing efforts by Providers of all types (0.9% of all claims)
Balance Billing claims resolved through communication or negotiation
# of all Balance Billing claims at or under $5, (74% of all Balance Billed claims)
Estimated plan savings versus historic PPO
$5,600,000 to date less @$850,000 in plan settlements and costs. Member savings in claims and reduced premium share is currently estimated at $1,115,000.

23. How will Plans and Providers adapt to RBP?
Hospitals are Forced by Economic Realities to Shift Costs

24. How will Plans and Providers adapt to RBP?

25. How will Plans and Providers adapt to RBP?
Now Let’s Add Shifting Demographics

26. How will Plans and Providers adapt to RBP?
Strange Bedfellows?

27. How will Plans and Providers adapt to RBP?
RBP provides common ground to address the concerns of both Plans and Providers
Plans Want: Providers Want:
Access to Delivery of
High Quality Healthcare
Controlled Cost Fair Reimbursement
For the Services Rendered
Manage Expenses Engage Employers
Into the Future
Participants Patients Engaged in Their Healthcare Decisions
Action Now To Consider Options Regarding Payment Models

28. How will Plans and Providers adapt to RBP?
RBP provides common ground to address the concerns of both Plans and Providers
Plans and Providers want broader use of analytics in measuring outcomes in terms of both cost and quality.
Plans and Providers need a common language they can use to discuss their specific concerns.
Plans and Providers want more transparency in their interactions.
Plans and Providers want to move toward a more “value based” approach to funding the healthcare system.
Plans and Providers want to avoid a politically engineered solution to a national problem.

29. Question: What happens inside a PPO plan today?
Oh, and Another Thing
ACA Compliance
(In case you were wondering)
ACA establishes certain requirements for Plans regarding Maximum Out of Pocket and Minimum Value
RBP programs all comply with these requirements – as such requirements only apply to the benefits covered by the Plan. ACA measures what is covered not the amount that is not covered.
Question: What happens inside a PPO plan today?

30. “Of course I talk to myself
“Of course I talk to myself. I like a good speaker, and I appreciate an intelligent audience.”
Dorothy Parker
Questions/Comments?