Is reference-based pricing the future of thehealth care industry? There are too many fluctuating variables currently in play to sayfor sure, but one thing is certain: it has a lot of appeal. “To me, being a financial guy,it made sense,” says Mark Gitter, chief financial officer for SanAntonio-based GVTC Communications, which hopped on the RBPbandwagon in 2015. “I just want to pay fair market value for theservices I get.”

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More companies are taking note of the RBP model, which has beenaround for years, but only recently has seen increased viabilityand appeal. “It wasn't until organizations decided they were goingto absorb financial and legal responsibility for thisbalance-billing piece that it made it a real option,” says JohnSimmons, founder and president of StrataBen, and a benefitsconsultant that helped connect GVTC with Advanced Medical PricingSolutions (AMPS), one of the first of a growing number of RBPservice providers. “Those intersected at the perfect time.”

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It's too soon to say whether RBP is the future, but it's not toosoon to discuss whether it's the right move for your client.

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1. Start the conversation

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No matter what your clients' health costs look like or whetheryou think RBP is a good decision, this first step is a must foranyone. “You should still have the conversation with them that thisthing is out there,” says AMPS founder and president Mike Dendy.“If you don't, somebody else is going to come in and ask, 'Has yourbroker told you about reference-based pricing?' 'No, he hasn't? Iwonder why?'”

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Clients will most often be receptive to the conversation.Medical inflation alone is driving up health care costs an averageof 9 percent to 10 percent annually, and employers and employeesare both feeling the pinch. “At some point, the pain is high enoughthat they say they have to do something,” Dendy says. “They justcan't look away anymore.”

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GVTC reached this tipping point in 2015, when it saw a 22percent jump in costs to its self-funded medical plan due to acouple of high claimants. “The tipping point is crucial,” Simmonssays. “If GVTC had been trending along at 2 percent as they had foryears, they might not have made the move. There's a tipping pointall of our clients get to.”

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Employers and employees reach a point of frustration. “I'm madas hell and I'm not going to take it anymore,” Dendy says,borrowing a famous movie quote.

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Cost is a major motivator, but it wasn't the only factor forGVTC. “I don't want to be the guy sitting there getting a 20percent discount off the 500 or 600 percent markup of Medicare andthink I'm getting a great deal,” Gitter says. “Everyone is going toend up moving one way or another. The last ones in are going to bepaying more than anyone else. I'm not going to be the last onestanding.”

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2. Establish the long-term plan

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So you've got a client fed up with their health care costs andready to do something about it. Now what? Once you've opened theclient's eyes to what they can get out of such a model,the next step is to define what they actually want, andhow they can realistically achieve it.

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For GVTC, a primary goal was limiting the incidence of highclaimants that were wreaking havoc on the budget. “We had a couplereally bad years,” Gitter says. “I'm watching the bank accountlooking at all of this, and it caused us to start looking atalternatives to PPOs, ways we could control costs.”

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They tested the waters with medical billing review beforedeciding to jump headfirst into RBP. “I told them right from thebeginning, you have to put your money where your mouth is. I've gotto see it work,” Gitter says. “Son of a gun if they didn't comethrough with immediate cost savings on the medical billreview.”

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When discussing RBP models, clients also need to have a fullunderstanding of the relationship between all entities and how tocreate an arrangement that works for everyone. “Most of our clientsare large and community providers,” Simmons says. “We could nothave a situation where the front page of the news was 'GVTC TreatsLocal Hospital Unfairly.' Goal number one is to fairly reimburseproviders. Cut everyone to the bone so there's no profit margin andyou get terrible care.”

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Goal number two? “We have to figure out how to protect themodel,” Simmons continues.” You have to protect the future spend,as well. Not making a one-year decision, but a five- to seven-yearstrategic timeframe.”

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Finally, the plan needs to take into consideration the memberswho will be using it. “A really big thing I don't want to overlookis the fact that we didn't touch personal physicians,” Gitter says,noting that the company instead decided to just target facilityproviders, getting the most bang for their buck while making thetransition as painless as possible for employees.

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3. Craft the message for employees

 

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Behind the scenes, RBP requires a lot of paperwork andprocedural changes. “The way that RBP is, you have to give someresponsibility to the service provider to allow them to work withthe provider who is submitting the claim,” Simmons explains. “It'snew to them, and it was new to us as well. But most clients don'tthink about that.”

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What they worry about more is that the model is new toemployees. “It's really a meeting of the minds,” Dendy says. “Anemployer and employees have decided they want to have benefits,they want them to be affordable. The conversation with employeesgoes like this: 'We want to continue to offer this service. Here'swhy it's so expensive. Are you willing to work with us to havesomething different?' RBR is not as successful when the employer orbroker makes that decision and doesn't have that communication withthe members.”

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When first introduced to RBP, employees often assume(incorrectly) that it will limit them to an approved list ofproviders and facilities. “They were really worried that theywouldn't be able to go to the doctor of their choice,” Gitter says.“We took that as an opportunity to be in control of the message andcommunication. I had to explain to them that this was all HIPAAprotected, HR was not going to have access to their information.There's a whole process that we go through, and we recentlyrefreshed our employee communication to help them understand howthe process works.”

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Employees' skepticism and confusion can cause them to throw uptheir guard, which is what Gitter encountered during initialmeetings with employees. “One thing I said that resonated: 'Cananyone tell me what it costs just to have a doctor's visit? Or atooth extraction? Appendix surgery?' They had no idea.” Gitterexplained to employees the connection between those costs and thepremiums the company and employees paid every year. “I explainedthat we have to be concerned about what these things cost, justlike when you go to buy a new car.”

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4. Help employees understand their role

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In the end, the success of RBP programs is dependent on thebuy-in and cooperation of employees. “It's only successful to theextent employees understand what's going on and why they have to beresponsible when they get an explanation of benefits,” Gittersays.

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The RBP model breaks with what consumers are used to, andhospitals for that matter, which will potentially send a bill foran amount beyond the negotiated service price in hopes ofcollecting from the consumer. Used to a different system, someassume they have to pay—or else. “We had people worried aboutgetting their credit ruined,” Gitter says. “Just because you'regetting a bill doesn't mean your credit is ruined.”

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It's the job of the RBP service provider to resolve the issue,but the job of the employee to send the EOB. “Sometimes they followthe rules, and sometimes they get very antsy,” Simmons says.“There's a whole education process you have to go through to makesure the strategic implementation isn't upset by the memberreaction.”

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Tying the new system to visible results can help take the painout of the process and encourage employees to adapt. “With everyemployer we introduce to RBP, our first suggestion is to lower thecopays and deductibles so the employees see an immediate benefit,”Dendy says. “You're going to see less expense because the companyhas figured out a better way to purchase those services.”

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At GVTC, Gitter promised an incentive for employees'cooperation, and delivered, freezing premium levels in 2017 andfully absorbing the cost of inflation—which was more than offset bythe savings created under the RBP model. “They had some nice, earlywins that gave enough wind in the sails to reinforce the model,”Simmons says. “Some of the reticence fell by the wayside.”

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RBP programs have been successfully implemented for companiesacross the country—in Texas, Pennsylvania, Florida, Illinois,California—and Dendy expects the growth to continue, especially asmedical providers face continued regulatory uncertainty. “Mosthospitals recognize the system we have now is not long for thisworld,” he says. “Intelligent hospitals trying to build their ownbrands or businesses are recognizing that a good way to do that isto partner with an employer group and create an incentive toutilize that hospital.”

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“We need this in the medical industry,” agrees Gitter. “Thewhole issue about not understanding what we're paying for somethingis not how we do anything in the rest of our lives. It's just notsustainable. The industry has got to change or it's going toimplode.” 

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Emily Payne

Emily Payne is director, content analytics for ALM's Business & Finance Markets and former managing editor for BenefitsPRO. A Wisconsin native, she has spent the past decade writing and editing for various athletic and fitness publications. She holds an English degree and Business certificate from the University of Wisconsin.