Health care providers are accepting less

Providers now collect less than half of what they are owed for services rendered. The tipping point appears to be bills over $500.

In those cases, collection rates fall off sharply.

The reasons

The rise of high-deductible health plans and increasing cost-sharing means higher nominal dollar amounts of financial responsibility for the patients. But many of the patients can't pay.

Even insured individuals are contributing to the growing volume of bad debt, which exceeded $17.4 billion in 2023.

More than half of that bad debt came from patients with some form of insurance, including commercial, Medicare Advantage and managed care plans.

These statistics paint a clear picture: Providers are routinely accepting far less than their original charges.

Yet health plans continue to reimburse at inflated levels, paying based on billed charges or network rates that don't reflect market realities.

The disconnect is costing employers and employees alike.

Reference-based pricing

For self-insured plans looking to control costs while protecting members, it's time to match strategy to reality.

If providers are only collecting 30 to 50 cents on the dollar from patients, it's not unreasonable for plan sponsors to assert payment limits that are fair, defensible and aligned with what providers actually accept.

Reference-based pricing, or RBP, does exactly that.

By tying reimbursements to a multiple of what Medicare pays providers, rather than a percentage of the provider's billed charge, RBP introduces transparency and predictability.

Related: Reference-based pricing: successful characteristics and common traps

It replaces arbitrary markups with rational benchmarks and gives employers real leverage in managing plan costs.

In addition to setting upfront reimbursement limits, plan sponsors can strengthen their position with post-payment review.

Rather than paying claims without scrutiny, this approach involves a careful audit of payments after services have been delivered.

It's designed to catch overcharges, billing errors and inflated fees that often slip through during initial processing.

When discrepancies are found, payments can be challenged, renegotiated or even recovered, providing an extra layer of financial control.

Together, reference-based pricing and post-payment review create a powerful framework for employers.

These strategies can lead to substantial savings on medical claims, reinforce legal standing when addressing balance bills and offer far greater transparency into how health care dollars are spent.

Just as importantly, they help protect plan members from unfair billing practices that can create financial distress and erode trust in their benefits.

Plan sponsors' next move

Today's health care revenue model is failing. Plan sponsors can't afford to remain on the sidelines.

Providers have already adapted to this new financial reality, routinely accepting less than half of what they charge, while also grappling with mounting pressures such as rising claim denials, tighter margins and shifting regulatory demands.

In this environment, those employers who are not at the negotiating table are most likely on the menu.

Employers must take on a more active role in reshaping how their health plans operate.

The ever-increasing enrollment in coverage where the government fixes prices at rates below cost (Medicare, Medicaid, VA, etc.) calls for a reassessment of outdated payment models, a critical look at the value of network contracts and a willingness to set fair, transparent reimbursement standards.

More than that, it's a time to protect plan members from the financial harm caused by excessive medical bills and opaque pricing.

Proactive plan sponsors align their benefit strategies with what's actually happening in the health care marketplace.

By leveraging data, legal tools and proven cost-containment methods, they can build a more sustainable path forward.

This is ultimately about more than economics.

It is about advocacy, standing up for employees and their families and protecting them from the burdens of a system that too often puts them at risk.

Providers are already adjusting to these new norms. Employers should too.

Christine M. Cooper is the CEO of aequum LLC, a patient advocacy firm.

Jack M. Towarnicky, CEBS, is an ERISA and employee benefits compliance and planning attorney with Koehler Fitzgerald, a member of the aequum LLC patient advocacy team and a member of the federal ERISA Advisory Council.