You’ve probably read several articles from me regarding Reference Based Pricing (RBP). RBP simply means that a Reference Point is used with which to Base the Pricing, instead of an arbitrary PPO “discount off of what.”

Reference Based Pricing companies have been sprouting up all over the place recently, and some use different reference points with which to base their pricing. Some use a multiple of Medicare, and some use a multiple of the hospital’s reported cost, while others may use a combination.

RBP companies can be categorized into two types: Pay and Defend or Negotiate and Settle. Pay and Defend means that the RBP company has determined a payment to a facility (hospital) based upon their metrics that they utilize, as mentioned above. They will then defend that pricing for the employer as well as the members if necessary. They will hold their ground based upon legal precedent, reasonable cost, and Quantum Meruit.  Recognize that some RBP companies handle any legal aspect differently and at who’s cost – their cost, the plans cost, or the members cost.

Negotiate and Settle RBP companies do simply that. If a hospital stands their ground and pushes back on the determined payment, then the RBP company steps in and tries to negotiate a higher payment in order to settle the case.

There are a couple of problems that I see with the Negotiate and Settle – initially. First, if the RBP company is going to try to negotiate a payment and “buckle under” what they previously determined to pay because the hospitals taking a hard line, what’s the point of having RBP? Secondly, once a higher reimbursement rate is negotiated with that hospital, then in effect, all additional charges at that hospital are going to be negotiated at the same rate.

There is a time to negotiate and settle, but that’s at the end of the rope not at the beginning. Generally, 85% of the time the facility is going to take the payment as payment in full.  Balance bills may occur to members the other 15% of the time.  These may come once, twice, or longer.  Pay and Defend RBP companies can usually get 60% of those to go away quickly.  Negotiate and Settle – they can too, but at a higher cost.

Under ERISA a plan fiduciary is responsible for paying reasonable charges, and if the RBP company’s payment metrics provide for a fair and reasonable profit to the hospital, then that can be defended under ERISA. State contract law infers a “reasonable” price into any contract without a stated price – something hospital bills almost always do not have. Quantum Meruit.

Last month a jury trial ended in Colorado whereby a jury found Centura Hospital’s chargemaster rates for medical services to be unreasonable in Centura v. French.  Centura tried to balance bill a member for an amount that the RBP company deemed to be excessive. The jury didn’t agree with the balance bill that Centura was trying to collect.

These programs are gaining ground and provide a way for an employer to sustain health insurance benefits to their employees, as well as protecting members from egregious charges. But it’s important that you know what you’re getting into because sometimes you don’t know what you don’t know.

However if you want to know more, you can reach me at 970.349.7707 or at frank.stichter@strategichpc.com