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Stop-Loss: The Forgotten Player in the Reference Based Pricing Game

By: Jon Jablon, Esq.

Plan sponsors of self-funded health plans have a lot to think about. From deciding which services to cover to making tough claims determinations, there are lots of moving parts to consider and be mindful of. Plans that utilize reference-based pricing are in the same boat, of course, except they have added even more moving parts to their benefits programs.

As many plans that use reference-based pricing are aware, some claims need to be settled with providers to eradicate balance-billing. A claim initially paid at 150% of Medicare may need to be ultimately paid at 200%, for instance, pursuant to a signed negotiation between the health plan and the medical provider. Fast-forward two months later, to when the plan receives notice from its stop-loss carrier that the carrier is only considering 150% of Medicare to be payable on the claim, and the extra 50% of Medicare (which can be a significant amount!) is excluded.

When the plan asks why it isn’t receiving its full reimbursement, the carrier quotes its stop-loss policy and the plan document. The former provides that the carrier will only reimburse what is considered Usual and Customary – and the latter provides that Usual and Customary is defined as 150% of Medicare, by the Plan Document’s own wording. The carrier’s liability, therefore, is limited to 150% of Medicare. The plan’s has chosen to pay more than that. Even though it’s for a very good cause, the stop-loss insurer may deny that excess payment amount. In this example, there is a “gap” between the plan document and stop-loss policy such that the plan has paid a higher rate than what the carrier is obligated to pay.

For this reason, it is so incredibly important for plans that are using reference-based pricing to talk to their stop-loss carriers. Some carriers will say “we don’t care – your SPD says 150%, so we’ll reimburse 150%,” but other carriers will say “we understand that reference-based pricing saves us money, and we understand that it’s not always as simple as paying 150% and walking away – so we’ll work with you in terms of reimbursement.” Other carriers still will agree to place a cap on reimbursements higher than what’s written in the Plan Document; in other words, if the plan provides that it’ll pay 150% of Medicare, the carrier may agree to reimburse settlements up to 200% of Medicare, if applicable and if necessary.

There are lots of options for how a stop-loss carrier might react to reference-based pricing, and the only way to find out is to have a conversation. If you don’t ask, you’ll never know (until it’s too late, that is).

Moral of the story? If you’re going to adopt reference-based pricing – whether full network replacement, carve-outs, out-of-network only, or any other type – put stop-loss high up on the laundry list of considerations.


You Down with RBP? (You May Already Be!)

By: Jon Jablon, Esq.

Reference-based pricing is one of the most mysterious self-funding structures out there. At its core, it’s a simple enough idea: the plan changes what it pays for non-contracted claims. At its most basic level, it’s a way to redefine the traditional notion of U&C; generally, RBP plans base payment on some percentage of the Medicare rate. Guess what, though? If your plan defines U&C based on a database such as FairHealth (for instance), that’s a form of RBP too!

RBP isn’t a structure with a well-defined set of rules. Different plans, TPAs, and vendors do things very differently. The common denominator is that pricing for claims isn’t based on billed charges or an arbitrary percentage off billed charges, but an objective metric based on the value of services. If the plan considers rates set by a popular database to be indicative of the value of services, then that’s the reference upon which prices are based (there’s the R, the B, and the P!).

While of course there are practical differences between popular databases and Medicare, the easiest example being differences in the actual amounts generated), the major conceptual difference is that providers are generally more likely to accept rates generated by popular databases as payment in full than to accept Medicare rates as payment in full from the same payors. Even though the majority of hospitals do accept Medicare, the prevailing opinion among hospitals is that Medicare rates are essentially thrust onto them in a contract that they sign out of necessity (since many hospitals would lose a large percentage of their business if they didn’t accept Medicare). While payors may consider Medicare rates or a percentage above them to be reasonable, the majority of hospitals tend to disagree – at least at first.

When a health plan accesses the FairHealth database (again, just for example) to obtain pricing, there is often no patient advocacy needed, since many providers access the same database or consider those rates to be generally accepted – but to contrast that to Medicare-based pricing, a plan paying Medicare rates is much more likely to need some sort of advocacy since Medicare rates are not nearly as widely-accepted by providers. Patient advocacy is one of the must-haves in “traditional” RBP, which typically uses Medicare rates.

The morals of this story: (1) you may already be using RBP without realizing it! And (2) make sure your RBP program has patient advocacy, if necessary. If your chosen RBP payment methodology doesn’t need patient advocacy, then your RBP experience will probably be a bit simpler – but if you do need it, don’t skimp on it.


A Contract By Any Other Name

By: Jon Jablon, Esq.

As you may know, the regulators have been impressively sparse in their opinions of reference-based pricing (or RBP, for short). Courts have scarcely weighed in at all, and the DOL has published a few bits of guidance, some more helpful than others, but it’s still the wild west out there in the RBP space.

One of the central themes – and in fact one of the only themes – of prior DOL guidance has been that balance-billed amounts do not count toward a patient’s out-of-pocket maximum. That’s from way back in the ACA FAQ #18, published in January 2014. Then, in April 2016, the DOL clarified a bit. Question 7 of FAQ #31 (which we have previously webinarred about, and yes, that’s a word, as of right now) indicates that the previous guidance still holds true.

Well, sort of.

Yes, amounts balance-billed by out-of-network providers are still exempt from being counted toward a patient’s cost-sharing maximum, but the wording “out-of-network providers” apparently specifically implies that there are some in-network providers, according to the DOL. Many RBP plans have no in-network providers whatsoever; the result is that balance-billed amounts are counted toward the patient’s out-of-pocket if there are no “in-network” options. What does “in-network” mean, though, in this context?

At first blush, the concept seems to create a problem for RBP, since having “in-network” providers is antithetical to RBP. In most cases, however, RBP is not administered in a vacuum; usually, RBP is administered, at least in part, by a vendor, and that vendor generally has some processes in place for avoiding member balance-billing. The plan must somehow ensure that members are not balance-billed above their out-of-pocket limits, unless they had options and consciously chose not to utilize them.

For instance, if a plan is using RBP for out-of-network claims only – that is, accessing a primary network, but paying based on a reference price for anything falling outside that network – the plan could, in theory, allow any patients to be balance-billed for any amounts, if those patients have chosen to go out-of-network. That’s because the plan has established options for the patient to avoid balance-billing – but if the patient has chosen to not utilize those options, that’s the patient’s prerogative.

The problem arises, however, in the context of a plan that uses no network and has no contracted providers; if a provider balance-bills a patient above the out-of-pocket maximum when the patient had no choice but to be balance-billed, that’s when an employer could be in a state of noncompliance.

Greatly simplified, the regulators have specified that plans using reference-based pricing must provide patients some reasonable way to avoid being balance-billed. If all providers are non-contracted and will balance-bill, the plan is not permitted to sit idly by and allow the balance-billing to occur without doing anything about it. The plan will have no choice but to settle those claims with providers on the back-end. If, however, patients have “reasonable access” (whatever that means) to providers that will not balance-bill the patient – whether through some sort of network, or direct contracts, or even case-by-case agreements – the plan will have met its regulatory obligations, and can continue to not count balance-billed amounts toward patients’ out-of-pocket maximums.

The take-away here is that if you’re doing RBP, make sure you’re doing it right! The legal framework may be the wild west, but your own individual RBP plans shouldn’t be. Contact The Phia Group’s consulting team (PGCReferral@phiagroup.com) to learn more.


North Cypress Medical Center: What Does it Mean for RBP?

By: Jon Jablon, Esq.

If you’ve dabbled in reference-based pricing, or RBP, then you know about the legal and business challenges involved. From the inability to compel providers to bill reasonably to the difficulty in settling at a mutually-agreeable rate, RBP is tough. There’s a lot to it, and the law has always been on the side of the providers, making fighting the good fight just that much more difficult.

Recently, however, the Texas Supreme Court (in In Re North Cypress Medical Center Operating Co., Ltd., No. 16-0851, 2018 WL 1974376 [Tex. Apr. 27, 2018]) has ventured a change from its historical position, and has indicated that “…because of the way chargemaster pricing has evolved, the charges themselves are not dispositive of what is reasonable, irrespective of whether the patient being charged has insurance.” Historically, Texas courts have opined that the chargemaster is somehow the reasonable price of services.

This case indicates that evidence of accepted rates (from all payers) is in fact relevant to determining the reasonable value of medical services; although this case doesn’t actually determine the reasonable value or assign any relative weight to the amounts paid, it is a stepping stone that RBP plans can use to try to enforce their payment amounts and perhaps induce more reasonable settlements.

To be sure, the court indicated that “[t]he reimbursement rates sought, taken together, reflect the amounts the hospital is willing to accept from the vast majority of its patients as payment in full for such services. While not dispositive, such amounts are at least relevant to what constitutes a reasonable charge.” In other words, amounts the hospital accepts from all payers are relevant – but “not dispositive,” such that no one accepted amount is conclusively considered reasonable simply by virtue of having been accepted in the past. The Texas Supreme Court’s opinion that those amounts are even relevant, however, is a big step, and presents RBP plans with a valuable tool.

According to the court, “[w]e fail to see how the amounts a hospital accepts as payment from most of its patients are wholly irrelevant to the reasonableness of its charges to other patients for the same services.” We concur! This decision gives health plans some ammunition to counter the popular hospital opinion that Medicare rates are not relevant (since arguably they’re not “negotiated” but are instead forced upon the hospital by the government). We have always argued that no hospital is required to accept Medicare payments, but hospitals choose to because presumably those payments are valuable and worthwhile; we expect this case to help the argument that Medicare rates must be considered relevant when determining reasonable value – and the chargemaster rates themselves are all but meaningless.


The Reference Based Pricing Stew

By: Jon Jablon, Esq.

Reference-based pricing (or RBP) tends to be one of those things that there’s little ambivalence about; in general, if you are acquainted with reference-based pricing, you either love it or hate it. And, like so many hot topics, some of the intricacies are not quite clear. That’s partially due to the sheer complexity of the industry and reference-based pricing in general, but also partially due to the competing sales efforts floating around. Since the RBP stew has so many ingredients, like any stew recipe, there are tons of different ideas of what makes a good stew – but that also means it’s fairly easy to cook a bland one.

Some have historically advocated sticking to your guns and never settling at more than what the SPD provides. This is a mentality that has largely dissipated from the industry, but some still hold it dear, and many plan sponsors and their brokers adopt reference-based pricing programs with the expectation that all payments can be limited to a set percentage of Medicare with no provider pushback. That can best be described as the desire to have one’s stew and eat it too; in practice, it’s not possible for the Plan to pay significantly less than billed charges while simultaneously ensuring that members have access to quality health care with no balance-billing. The law just doesn’t provide any way to do that.

Plans adopting reference-based pricing programs should be urged to realize that although it can add a great deal of value, reference-based pricing also necessarily entails either a certain amount of member disruption, or increased payments to providers or vendors that indemnify patients or otherwise guarantee a lack of disruption. It is not wise, though, to expect that members will never be balance-billed, and that the Plan will be able to decide its own payment but not have to settle claims. Provider pushback can be managed by the right program, but unless someone is paying to settle claims, there is no way to avoid noise altogether and keep patients from collections and court.

Based on all this, it has been our experience that reference-based pricing works best when there are contracts in place with certain facilities. Steering members to contracted facilities provides the best value and avoids balance-billing; when a provider is willing to accept reasonable rates, giving that provider steerage can be enormously beneficial to the Plan. Creating a narrow network of providers gives the Plan options to incentivize members, and gives members a proactive way to avoid balance-billing.

There are of course other ingredients that need to go into the RBP stew – but having the right attitude is incredibly important, and knowing what to expect is vital. Expectations are the base of the stew; you can add all the carrots (member education?) and potatoes (ID card and EOB language?) you want – but if the base is wrong, then the stew can’t be perfect.


Reference Based Pricing Bloopers & Blunders

By: Jon Jablon, Esq.

Reference-based pricing is a huge hot topic in the industry today, and different entities have very different ideas of how to accomplish a given health plan’s RBP goals. Doing it right isn’t difficult, especially when you have the right partners on your side – but doing it wrong is even easier. Here are a few of the most common RBP “bloopers and blunders.”

Lack of preparation: poor (or no) supporting SPD language

A health plan’s rights are only as good as its language. This is true regarding subrogation, assignments, and many other facets of plan benefits and administration – but it is especially true, and immediately noticeable, in the context of the plan’s payment parameters. Since RBP necessarily entails changing the way the health plan pays claims, the plan language must reflect how the Plan Administrator will adjudicate allowable amounts for claims submitted to the plan. If the language is vague, ambiguous, or unsupportive, the plan is giving medical providers the ammunition they need to invalidate the plan’s RBP-based payment determinations.

Looking at claims in a vacuum: applying RBP payments to contracted claims

Simply put, if a health plan has agreed to a contract, it must follow that contract, or prepare for the consequences. If a plan wants to use a reference-based pricing methodology, it should ensure that it doesn’t have contracts that require claims to be paid at a higher amount. One of the biggest issues we see is when a health plan pays a claim based on Medicare rates because it is payment the plan has deemed reasonable – only to later encounter pushback from a provider that asks, “what about our contract?” The world of insurance is a world full of contracts – especially self-funded insurance, where plans have to arrange their service agreements themselves rather than relying on an insurer to handle everything for them. Ignoring contracts is one of the most problematic things there is for a self-funded health plan.

Not knowing your audience: refusing to settle claims with providers (or choosing too-low standards)

Calling someone’s bluff when negotiating can be a useful tactic at times, but be aware that medical providers have the right to send patients to collections or even sue them. Calling a hospital’s bluff would be a more enticing prospect if not for the fact that the patient’s credit is held hostage – and unlike in Bruce Willis or Denzel Washington movies, hostages do sometimes get hurt… Just because the health plan may have the right to walk away from the bargaining table doesn’t mean it’s a good idea.

Not knowing all the options: thinking RBP is all or nothing

When looking into a reference-based pricing option, many TPAs, brokers, and health plans have the impression that they either use RBP, or they don’t. The reality is that there are other options out there! For some plans, physician-only networks and narrow networks will help the plan achieve its goals without the burden of “full” RBP; for many plans, though, the out-of-network option is the best way to go. If the plan accesses a provider network that adds significant value for the plan, and one that members are well-accustomed to, then perhaps losing that network access would not be the best route to take.

The bottom line is that the self-funded industry contains various vendors and consultants that can offer reference-based pricing guidance and options to suit every health plan’s needs. Feel free to contact The Phia Group to learn more.


Reference-based Pricing: Decisions, Decisions…
Jon Jablon, Esq.

Self-funding is growing. There’s no question about that. As medical costs continue to skyrocket, there are certain trends in the industry that have increased in popularity to try to combat the ever-growing costs. One of those trends is reference-based pricing, or RBP.

Most people working in our industry have some familiarity with RBP due to the various angles from which they have been bombarded. There are educational materials and sales pitches constantly being thrown at those who represent health plans – and since some of these materials describe RBP differently and different vendors vary in their accounts of how RBP should work, it can be difficult to know what to listen to and which vendor to ultimately place business with.

We generally recommend asking potential vendors certain questions and weighing their answers – and of course different weights should be issued based on the priorities of the particular entity making the decisions. Some questions that we advise to ask include:

•    How is the vendor paid? Are there fees that may become due from the client other than the “base” service fees?

•    Please describe the flexibility that each individual client has in choosing its own payment level, settling claims, or engaging third parties if necessary.

•    Do you assume fiduciary duties on behalf of the client? If so, what benefit does that provide relative to RBP, and which decisions will you be making as fiduciary? If not, why not?

•    If we or a group have provider contracts in place prior to engaging your services, are you entitled to fees or other contractual benefits based on savings generated by those contracts?

•    Is there a minimum claim or balance-bill threshold under which you will not handle the claim or bill?

•    Is there a maximum amount (whether percentage of bill, percentage of Medicare, or other metric) over which you will not negotiate claims with medical providers?

•    In the event a medical provider refuses to negotiate at a rate you deem reasonable, what is your next step?

•    Is there a point at which you will cease handling a given file? If so, are there continued protections against balance-billing?

•    If the TPA, broker, or group is in need of guidance related to a claim for which you are not specifically earning revenue, is there an extra cost for providing that guidance?

You might be surprised at some of the answers you get; if you’re serious about reference-based pricing, a vendor should be chosen after a careful review of everything the vendor has to offer – and of course in comparison to its competition. Happy shopping!


It will be my pleasure to balance bill the patient $1.3 Million…
…Is what a Hospital VP of Accounts Receivable said to me when I called to discuss a reference-based pricing (RBP) claim that was referred to The Phia Group for handling.  Upon review, the health plan had issued a reasonable percentage above Medicare on a large claim, and this was perfectly in line with the Plan Document’s language.  In fact, payment for this episode of care was subject to a percentage above a particularly high Diagnosis-Related Group (DRG) pricing, so the payment greatly exceeded the average commercial insurance reimbursement at this facility.

You see, hospitals report their complete financial information to the Centers for Medicare and Medicaid Services (CMS).  This publicly-available information is submitted in accordance with generally accepted accounting principles, and verified by the hospital to be accurate.  At The Phia Group, we use Medicare payment rates along with this data to assess the fair market value of services (what payors actually pay).

Back to my story. I would have understood had the Hospital VP said “I am sorry, Jason, but I have a policy that requires me to balance-bill the member,” or “We can’t write off the balance but let’s explore ways to close this account together,” or anything like that.  I get it – there are always policies to follow.  But to say “It will be my pleasure to balance bill the patient 1.3 million…”  Come on.

There is a lot of rhetoric out there about no one being happy with “the way things are” and how everyone wants to “do the right thing” as the market changes, but I don’t believe that.  I routinely see the ugliness of corporations gorging themselves on unreasonable reimbursements at the threat of destroying patients’ credit scores.  Patient credit is the ransom in exchange for payment of ridiculously high charges.  Thankfully, this generally proves to be the exception, as I deal with reasonable and helpful providers all the time; to those valued and reasonable healthcare providers: I salute you.

This particular interaction really shook me, and it stands as a stark reminder of the issues we need to address in achieving transparency and affordability in healthcare.

Reference-Based Pricing Webinar: Unraveling FAQ #31

UNRAVELING FAQ #31

Monday, May 2nd, 2016
3:30 PM (EST) to 4:30 PM

Join Us – Register Now!

Reference-based pricing is unquestionably a hot topic in the self-funded industry today. So hot, in fact, that the federal government has taken an active interest in it for the third time now; in its latest FAQ, published just last week (FAQs about Affordable Care Act Implementation, Part 31), the regulators reiterate concerns regarding network adequacy and how it relates to – and regulates – reference-based pricing arrangements.

Join us on Monday, May 2, at 3:30pm (EST) as The Phia Group’s legal team and special guest Tim Martin of Payer Compass help unravel the mystery of the DOL’s latest FAQ – and what it means for you and your plans.

ATTENTION: If you do not receive a confirmation email shortly after registration with webinar log-in details, check your spam filter.

The Top 10 Lessons of a Reference Based Pricer
By Jason Davis

Where to gather to discuss reference based pricing (RBP), you will have three opinions.

Read more…