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Secrets to Making Reference-based Pricing Work
MyHealthGuide Source: Adam Russo, Esq.,1/14/2016, Thompson Information Services Blog

In order for reference-based pricing (RBP) to work, health plan sponsors should do it in a way that involves implementing best practices for cost analysis, claim repricing, plan design, patient advocacy (including balance billing protection when necessary), and member education.

Ways to Make RBP Succeed

Employers, administrators, brokers and courts have begun to realize that determining the value of a health care service must involve something more than considering only a provider’s billed charges. More and more courts are accepting evidence based on the reasonable and customary value of the claims and not what the facility actually billed.

A health care provider’s billed price for particular services is not necessarily representative of either the cost of providing those services or their market value. The reasonable value of services (to be used to set the RBP payment your plan will pay) must consider evidence of the full range of fees that hospitals charge and actually accept as payment from private payers, Medicare or patients themselves.

Since Medicare reimbursement is almost universally accepted in the market, paying any willing provider the Medicare rate plus a percentage is an objectively reasonable approach to providing the broadest possible provider access for RBP plan participants. The problem is that these same facilities have been getting so much more than this from large insurers and networks for so long.

Toss Out the Red Herring

Since U.S. Department of Labor issued frequently asked questions on RBP in 2014, the argument was made that RBP must be illegal since the Affordable Care Act limits the out-of-pocket maximum that a patient can have. But the issue is that the agency wrote the ACA rule with in-network claims in mind.

Part of this confusion stems from the reality that networks have been so pervasive for so long that people cannot conceive of a world without them.

It is important to understand that a claim subject to RBP in many cases has no network and would be viewed under a typical network scenario as an out-of-network claim. Thus, according to DOL, balance billed amounts resulting from non-network claims are not included in the individual’s out-of-pocket cost limitations.

Protect Members from Balance Billing

This doesn’t make balance billing the patient desirable. The plan doesn’t want to be price gouged by facilities but also doesn’t want its patients to be balance billed. Plans have to play a balancing act, which is not easy to do.

If you are the patient, you start thinking that you are a pawn in a chess match when it comes to RBP. We repeatedly hear patients say they thought they had insurance and that getting balance billed must be a mistake. The upset patient runs to his or her HR department demanding answers, and in the end doesn’t care what the plan pays as long as he or she doesn’t get his or her credit scores ruined.

Employers typically do care about the employees’ well-being but also care about the plan’s finances. They realize that the more the plan has to pay, the pricier health insurance becomes. However, they have to balance this with understanding that balance billing is bad for business and for public relations.

Patient Advocacy Advised

The best RBP programs should have a patient advocacy process. The process should involve providers of all types. Any such negotiation would still require the plan administrator to determine any maximum payable amount within the parameters the plan defines for reasonable and appropriate reimbursement. Also, the plan administrator should be able to offer to cover any patient deductible.

Also, a comprehensive patient advocacy program will have information on providers in many service areas across the country and will help RBP plan members find providers that are unlikely to balance bill for their services.

Medical tourism is a favored aspect of RBP plans for the same reason that RBP plans are better for members who travel outside their normal service area. An RBP plan member who seeks care outside his or her regular service area is more likely to be able to find a provider that will accept RBP as payment in full.

Plan sponsors don’t want to pay beyond their RBP payment, especially if their stop-loss carrier limits its reimbursement to RBP levels. Under that circumstance, payments beyond RBP would sap the plan and not the stop-loss insurer.

Bring Providers Along

Good RBP programs have direct contracts with out-of-network facilities, and plan documents that give the plan administrator leeway to negotiate with providers.

Specifically, successful RBP plans have contracts in which out-of-network facilities agree to accept the plan’s RBP rates. At the same time, however, a readiness to negotiate claims when needed can prevent balance billing and collections. Facilities accepting the plan’s RBP rate sets off a virtuous chain of consequences: no balance, no patients being balance billed, no complaints and no scrutiny.

Further, plan language must:
1. allow for the use of RBP;
2. describe the sources of pricing data to be used by the plan; and
3. address assignment and appeals.
If those and related questions are not answered, third parties will be able to find ways to refute the plan’s payment methods. In order to do this correctly, you need to have great plan drafters, as well as experts at facilitating provider contracting and claim negotiations.

Patients must be educated about the process and understand the type of RBP practices involved. They must know whether the plan has a physician-only network or a narrow network, and what direct provider contracts exist. The plan should teach them what to do if they are balance billed, including: (1) who pays the balance and (2) what the worst case scenarios are.
Percentage of Medicare
Traditional networks have failed to stem the rising costs of health care. This has the overall effect of reducing access to health care. Further, networks have encouraged a pricing system where providers charge one thing for their services but accept an entirely different payment from plans with which they contract.

More and more plans are amending their plan language to Medicare-plus pricing if the patient goes out of network. This benefits the plan because it pays less per claim, and it does not pay the balance, because the patient chose to go outside of the network. It also doesn’t have to pay a vendor to negotiate these claims with the providers.

A typical RBP plan offers reimbursement at rates between 120 percent and 180 percent of Medicare. According to the American Hospital Association, Medicare payment, on average, covers only 86 percent of actual costs in treating Medicare patients. This means that to cover costs, providers need to receive, on average, 116 percent of Medicare payment or more.

Leverage Facilities’ Collections Issues

Last, but not least, we have to take a look at the provider’s mindset. Hospital billing departments are extremely busy these days. The problem is that they aren’t collecting a whole bunch of money. Collection of amounts that patients owe is large problem for many providers. Easing cost-sharing requirements offers a powerful incentive to providers to accept RBP, especially pricing that is well in excess of what many of those same providers receive from the Medicare and Medicaid programs.

Some hospitals and health systems are starting to review and revise their prices to make themselves more attractive to individual consumers, who increasingly experience sticker shock when they pay for services out of pocket under certain high-deductible health plans. The reality is that many hospital leaders are publicly admitting to scrutinizing their own charge masters. The master price list often just serves as the basis for rate negotiations with insurers in order to see how prices compare against the actual cost of delivering services.

As more consumers have to pay more things out of pocket, these pricing issues are gaining an increasing share of health systems’ attention. The reality is that patients are starting to buy into transparency of pricing. If you’re a patient at one facility and you go to four different hospitals and you get the same service and the bill is different, you begin to wonder why. Hospital charge masters have been widely criticized for irrational pricing. Yet hospitals and insurance companies continue to use those master price lists in some negotiations.

For many years, providers have relied on a PPO’s logo on a patient’s insurance identification card to determine a network plan’s reimbursement terms. Identification cards created for RBP plans have no PPO logo but they do contain detailed notice of the reimbursement terms stating that the payment will be based on a certain percentage above Medicare.

In Conclusion

Unlike network discounting from unrealistic gross charges, RBP plans use bottom-up pricing based on costs. Plan sponsors and drafters have a fiduciary duty to be prudent with plan assets. As more and more patients begin to look at the overall cost of care and the actual billed charges, it is getting harder for plan administrators to preach the benefits of network discounts since the bottom line is that most plan funds are coming from the contributions of members’ paychecks.
About the Author
Adam V. Russo, Esq. is the Co-Founder and Chief Executive Officer of The Phia Group LLC; an experienced provider of health care cost containment techniques offering comprehensive claims recovery, plan document and consulting services designed to control health care costs and protect plan assets. The Phia Group’s overall mission is to reduce the cost of plans through its recovery strategies, innovative technologies, legal expertise, and focused, flexible customer service.

Anti-Assignment Clauses Bar Provider’s ERISA Claims
By Carmen Castro-Pagan
An out-of-network health-care provider can’t continue with her claims under the Employee Retirement Income Security Act for unpaid benefits, fiduciary breach and failure to disclose documents against four health benefit plans, the U.S. Court of Appeals for the Eleventh Circuit ruled.
In the unpublished opinions issued Dec. 29 and Dec. 30, a three-judge panel affirmed the district court’s ruling dismissing the provider’s claims, and held that the participant’s assignment of benefits to a provider was void and unenforceable because the plans’ terms included valid anti-assignment clauses.
The cases are Griffin v. Health Sys. Mgmt., Inc., 2015 BL 428919, 11th Cir., No. 15-12138, unpublished 12/29/15 ; Griffin v. Gen. Mills, Inc., 2015 BL 428915, 11th Cir., No. 15-12157, unpublished 12/29/15 ; Griffin v. Southern Co. Servs. Inc., 2015 BL 430044, 11th Cir., No. 15-12135, unpublished 12/30/15 ; Griffin v. Focus Brands, Inc., 2015 BL 429997, 11th Cir., No. 15-12137, unpublished 12/30/15 .

Issue of the Year: Reference-Based Pricing and Balance-Billing
Issue of the Year: Reference-Based Pricing and Balance-Billing

In 2015 the self-funded industry evolved like never before. Innovative ideas spread like wildfire, as TPAs, stop-loss carriers, employers and brokers all over the country implemented new techniques to contain costs and secure the best results. Yet, the path to savings hasn’t been an easy one to travel.

All along, The Phia Group has worked with you to resolve thousands of issues – and by far, the most misunderstood, repeated, passion-inspiring issue has been reference-based pricing, balance billing, and the role of a fiduciary when handling such an arrangement.

Thank you for joining The Phia Group’s legal team on December 15th as they discussed reference-based pricing and balance-billing from the ground up and debunked common myths associated with it. This webinar will ended the year with a comprehensive primer on reference-based pricing and balance-billing, the rights of all parties involved, and what you can do to be proactive and successfully administer a reference-based pricing program.

Download Video Here

Download Slides Here

Download Audio Here


Court Nixes Health Plan’s Subrogation Claim
Posted December 22, 2015, 3:11 P.M. ET
By Carmen Castro-Pagan
A health plan isn’t entitled to reimbursement of $48,000 in medical expenses it paid on behalf of a minor beneficiary who was injured in an all-terrain vehicle accident, the U.S. District Court for the District of Arizona ruled.


In granting the beneficiary’s motion to dismiss, Judge Diane J. Humetewa ruled Dec. 17 that the plan’s reimbursement clause was unenforceable because it wasn’t included in the formal plan document, but instead was part of the summary plan description. The court further held that in light of the conflict between the plan and the SPD, the terms of the master plan controlled.
The case is Apollo Educ. Grp. Inc. v. Henry, 2015 BL 419831, D. Ariz., No. 2:15-cv-00143-DJH, 12/17/15

Less Takes More - The Phia Group Addresses the Summary of Benefits & Coverage Requirement

Benjamin Franklin, Blaise Pascal, and Mark Twain are all credited with having said, “I would have written a shorter letter, if I’d had the time.” Unfortunately, efforts to simplify complex matters often constitute the greatest challenge. This fact of life is certainly proven by the Affordable Care Act and its requirement that health plans provide consumers with a concise document detailing, in plain language, information about plan benefits and coverage. This summary of benefits and coverage document ( or “SBC”) is meant to help consumers better understand the coverage available to them, and allow them to easily compare options by summarizing key features such as the covered benefits, cost-sharing provisions, coverage limitations and exceptions.

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Keeping PACE With The Trends
Keeping PACE With The Trends

The self-funding industry is experiencing great opportunity and growth. In the past two years, millions of lives have transitioned away from the fully-insured health plan model in favor of the self-insured model – and despite the rise of exchanges, many employers are steering away from them for various reasons. These encouraging facts are tempered by the increased burdens facing both new and existing employer sponsors, third party administrators, industry brokers, and even stop-loss carriers and MGUs.

Fiduciary responsibilities have grown, liability shifting is now a common theme in a standard RFI, and lawsuits over claims and appeals decisions are becoming more prevalent.

Thanks for joining The Phia Group’s legal team on November 30th as we explored the numbers behind our industry’s growth and provided real-world discussion on the topic, while we explored real solutions to the issues presented.

Download Webinar (Slides with Audio) Here

Download Slides Here

Download Audio Here


The Supreme Court Seeks Solutions to the Latest Challenges to Subrogation Rights in Montanile Case
By Catherine Dowie

The facts of the latest healthcare subrogation challenge on the SupremeCourt’s docket (Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan) will be familiar to many. As you may recall from the June 2015 article,“TheRoad to Recovery: Subrogation Gets Its Day in Court… Again,” following a motor vehicle accident, Robert Montanile’s health plan paid over $120,000 on his behalf, subject to all plan terms, including a subrogation and reimbursement provision.
Read more…

FEHBA Preempts Kansas Anti-Subrogation Regulation
By Carmen Castro-Pagan
The Federal Employees Health Benefits Act preempts a Kansas administrative regulation prohibiting subrogation and reimbursement clauses in health insurance contracts of federal government employees, the U.S. Court of Appeals for the Tenth Circuit ruled .
The appeals court, in the Oct. 29 opinion, joining other federal courts in ruling that FEHBA preempts state laws limiting subrogation and reimbursement clauses. The decision confirmed the lower court’s ruling that a federal employee must reimburse her insurer because federal common law also displaced Kansas regulation.
The case is Helfrich v. Blue Cross & Blue Shield Ass’n, 2015 BL 356222, 10th Cir., No. 14-3179, 10/29/15 

The Phia Group, LLC Comments on Recent Industry Developments

These last few weeks have brought with them a whirlwind of controversy and concern. The Phia Group, LLC is pleased to announce that it will be addressing three of the hottest topics during its monthly webinar. If you have not yet signed up for our FREE webinar, to be held on Thursday, October 30th, 2014, from 1:00 – 2:00 PM EST, then you will most certainly be missing out!

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Plan Appointed Claim Evaluator (PACE)
Making determinations on medical claim appeals is a frightening prospect. The process can involve complex factual, legal, and medical issues, and can distract a plan administrator from its ordinary business functions, posing a significant resource drain. The PACE service is designed to let the plan administrator shift the fiduciary duty away, onto the PACE, for final-level, internal claim appeals.

Questions & Answers
PACE Flyer
Guide To Implementation
Guide To Appeals
PACE Webinar Slides

In the classic TPA arrangement, the TPA does not assume fiduciary duties, instead relying on the plan administrator for guidance on claims and appeals that require discretion. Many TPAs are still living in the past – an era where Plan Sponsors embraced fiduciary duties – but now,  plans and their brokers exist in a new paradigm, in which a TPA not offering a fiduciary option stands at a substantial disadvantage. As such, business opportunities are lost.

With this in mind, The Phia Group has developed PACE.  With a PACE, plan sponsors and TPAs assign the riskiest fiduciary duty (that is, the power to make payment decisions in response to final appeals), to The Phia Group.  This authority carries with it the most risk, because it is this final payment directive that will be scrutinized upon external review.

Self-funding veterans and novices alike will benefit from PACE. Groups that are moving from fully-insured or ASO arrangements can use PACE as a valuable tool to aid in the transition; these groups have never before had to be the fiduciary of their plans – and with the PACE, that daunting responsibility can be delegated to a neutral and capable third party.

The PACE not only enables the TPA to obtain new business not previously available to it, but also encourages client “stickiness” and also creates a new profit center for the TPA in the form of an administrative fee paid directly by The Phia Group to the TPA, in exchange for the TPA’s facilitation of the PACE service. In other words, PACE adds unprecedented value to the TPA from both a business and a revenue perspective.

In addition to having a third party expert analyze all appealed claims before they reach an external review, the PACE also ensures that legally mandated independent review organizations (IROs) are in place, and the PACE handles facilitation of external appeals with these IROs. Regardless of whether the PACE upholds or reverses a denial, the PACE’s service continues to apply.  From handling external appeals of denied claims to negotiating amounts payable for claims deemed to be covered by the benefit plan, the PACE works to ensure the correct and optimal outcome every time. This includes coordinating efforts with stop-loss, plan sponsors, brokers, and TPAs whenever these partners do not align.

As we know, any entity exercising control over a benefit plan or its assets may be deemed to be a fiduciary; third party administrators, brokers, and any other entity making decisions on behalf of these benefit plans may be dealing with liability for which it simply isn’t prepared. PACE is a way for the employer to be able to focus less on the complexities of its health plan, fiduciary duties, and stop-loss concerns, and more on what matters – its business.

PACE is also a way for the TPA to rest easy knowing that it is not unwittingly assuming fiduciary duties on final appeals.

For years, self-funded plan sponsors and TPAs have asked how they can avoid the risks inherent in self-funding, while still enjoying the benefits of that plan structure.  According to our CEO, Adam Russo, “With a PACE in place, we’re taking a giant step in the right direction. It’s a game changer.”