For decades we’ve all been taught by the insurance industry and medical providers of the value of networks – PPOs, HMOs, EPOs, EIEIO… While they have served a purpose over those decades, the reality is that they just don’t work anymore. Here’s why:
PPO discounts are negotiated by insurance companies as a discount off of medical provider sticker prices. For hospitals – the largest category of medical providers when it comes to the cost of claims – it’s a negotiated discount off of their Chargemaster. The Chargemaster is a voluminous file of everything they offer you and I when we walk in the door – it’s everything from Ibuprofen to the ICU – and its related price. I call it ‘top down pricing’ – a discount off of their billed charges.
The problem we have in this country is that there are no rules, no regulations, no nothing – except the CFOs imagination – about what those charges can be. So when an insurance company tells me that they have the best discounts, my cynical response is “discount off of what?”
In other words, “I’ll give you a 99% discount if I can control the price.”
What we need in this country is a pricing system that isn’t tied to whatever a hospital choose to charge. The Justices of a recent Colorado Supreme Court ruling described that Chargemasters are “arbitrary and ambiguous” and “have no relationship to a hospitals cost.”
Unbeknownst to most employers, there is a proven pricing methodology that’s been in place for ~15 years that doesn’t use a hospital’s Chargemaster to base the pricing. It’s call Reference Based Pricing (RBP). Reference Based Pricing simply means that a Reference point is used to Base the Pricing, usually Medicare Plus and/or Cost Plus. It’s a pricing strategy that reimburses a fair amount to the hospital, and a fair payment by the employer and employee.
This is truly a game changer for everyone and makes health plans affordable and sustainable for the long haul.
