Reference-based Pricing

So What is Reference-Based Pricing (RBP)?

This post will give you an overview of RBP and how it can effectively be used to combat the dramatically escalating cost of healthcare services. Navinsure is an employee benefits consultancy focused on RBP. We’ve watched employers lose cost-control with traditional full-insured health insurance models, and have taken a stand to shepherd forward-thinking employers to RBP.

Why is RBP so Powerful and Why doesn’t your Insurance Carrier or Insurance Advisor implement it?

This is a loaded question and often times can be quite controversial. Our answer is simple – insurance carriers and the vast majority of insurance advisors do not do it because they do not understand it (advisors) or they do not want it to work (carriers). When we poll employers, over 70% of them feel they do not understand RBP at all, or have been told by their advisors that is creates far too much noise for employees. Carrier’s do not want RBP to work as it takes away their only tangible differentiator left – their provider networks.

Pharmacy Benefit Managers (BPMs), Carrier Networks, and Hospitals at a high level:

  • Carrier networks, or PPO and POS networks allow the billing to commence from hospitals
  • Hospitals have no financial incentive to keep costs low
  • Hospitals are one of the only service providers in the U.S. with no regulatory body oversight
  • When you are a customer of Blue Cross, or United, or Aetna, you get their negotiating power over hospitals right? Not really….many times they negotiate down 40-50%, a cost that has already started 450% too high
  • Don’t PBMs help us keep our pharmacy costs down as employers? Wow, not in all cases anymore. Learn more about pharmacy rebates, they’re how many middle men make money
  • Insurance agents and brokers negotiate prices down. Really? So if a broker makes a % of premium (almost the entire brokerage model nationwide) aren’t they incented to get a “raise” every year for doing the same work? Easy answer is yes

So Who has the Burden with RBP?

  • Employer – Communicating to Staff and “trying” something different
  • Employee – this is where most advisors focus their energy – fear- mongering that the pain of change does not out-weight the result of the change – Navinsure completely disagrees on this point

If a consultancy is used with a deep understanding of RBP and results with clients, that is step one. The reason most advisors will not push RBP is for a lack of expertise, or implementing it with a client where it failed due to poor communications, and a lack of support from the top of an organization. In all of our successes with RBP, it started with a top-down approach, not from an HR-sponsored exercise. We have found the drivers of a successful RBP model to be the Financial owners of a business – Owners, CEOs, COOs, CFOs almost exclusively. In some cases HR departments with strong financial & P/L management backgrounds to be champions as well. That said, we’ve also found adverse-to-change HR departments simply take the easy way out – moving deductibles, coinsurance, copays, tiered-networks instead. That game is just about up as it’s akin to focusing your energies with a critically ill patient on the wrong ailment – take a car accident for example, and a patient with a dislocated knee cap, but an arterial deep gash on her neck. Our current healthcare advisors all race to fix the easy ailment, the disclocated knee cap. It looks bad, and many can “pop” it back in to place easily, but the real problem is….the real problem. The arterial gash….without fixing it, the patient expires, just like the U.S. healthcare system. Our problem is a deep arterial gash that few want to spend the time to fix, and get “dirty” fixing it. RBP is the surgical fix to the U.S. healthcare problem.

Who has actually done this well….someone with a big name?

Take a look at the successful implementation of RBP at CalPERS (California Public Employee’s Retirement System). They made a massive move to RBP from 2009-2013 and made a massive impact on their bottom line and also outcomes