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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 RBP 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.


RBP 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…

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.

Beating Medical Trend – Managed Care vs Reference Based Pricing
MyHealthGuide Source: Bill Rusteberg, 7/2015, RiskManagers.us White Paper <http://www.riskmanagers.us/>

The Problem

Medical inflation continues to rise. Facing rate increases year after year, plan sponsors, with their financial backs to the wall, have historically resorted to cost shifting. These continued failed attempts to control costs have driven some to seek alternate means to restore pricing sanity to health care. To many, the cost of health insurance can mean the difference between profit and loss.

Understanding the cost of health care is directly related to what we agree to pay; more and more employers are questioning managed care contracts upon which their health care costs are based. Many are discovering the truth for the first time. Secretive contracts between health care givers and third party intermediaries contain provisions that guarantee continuous and systematic cost increases. Shared savings side agreements and other schemes found in the health industry economic chain help fuel raging health insurance costs.

Known as medical trend, cost increases have proven to be consistent and predictable. The expected rise in the cost of medical services over time is expressed as an annual percentage increase and is an important element in underwriting future risk. Medical trend is a dominant cost driver in rate making. The annual compounding effect can double or triple health care costs over time.

“For managed care plans, the medical care inflation part of trend is a function of the changes in provider reimbursement rates that are negotiated. To the extent that such negotiations entail factors such as outliers and provider bonuses, the trend rate may be materially more than simply the weighted average increase in fees.” Kevin Gabriel, MBA, FSA, MAAA, Chief Actuary of Sierra Berkshire Associates, Inc.


The Solution
Moving away from managed care contracts, more and more employers are embracing a myriad of reference based pricing models. These models can vary in scope and reach; however all share certain common characteristics in conformance with prudent business practices. Price transparency and claim benchmarking are key elements.


In 2007 — 2008 we approached several of our clients to suggest something different to control costs. The concept was simple. Eschew managed care contracts in lieu of claim benchmarking off multiple data points such as Medicare reimbursement rates. Removing managed care contracts, i.e, PPO, and paying providers quickly, fairly and directly had an immediate impact on claim costs.

After 15 months we performed a study by running 100% of claims back through the prior PPO network reimbursement rates. This exercise proved a net savings of 43% above and beyond the PPO discounts we would have otherwise experienced. Instead of doing the same thing year after year, our client did something different and it worked.

It has been seven years since our first client exited the managed care world. Subsequently more clients have embarked on the same journey, most with equally good results. None have returned to the world of managed care.

The Evidence

Skeptics may ask “How have your clients fared over time? Have they won the battle against medical trend?” The answer may be found by reviewing the experience of four of our clients who have been on a reference based pricing model for five years or more.

Our study is based on actual paid, mature medical claims through succeeding plan years starting in the first year on reference based pricing benchmarked off the prior year under a managed care plan. All claims above stop loss levels have been excluded.

This abbreviated analysis does not recognize changing demographics and plan changes. For example the leveraging effect of higher deductibles will increase trend factors. Of particular importance it should be noted that plan changes occurred in each case through improved benefits supported by prior year claim savings. This study includes medical claims only.

One must understand that medical trend is just one of the factors used to calculate renewal rates for health plans and stop loss insurance. Each year carriers set their own trend level based on various factors, including the current health care inflation rate, analysts’ forecasts and their own experiences. However, our clients are self-funded and thus bear most risk with actual trend directly affecting costs without the benefit of pooling to any significant degree.

“Over the past several years, trend rates have consistently run 8-10% nationally, though certain regions have seen significantly higher or lower figures. Prescription drug trends (which are a component of this) have been more volatile. In the early 2000’s these trends were above 15%. They then fell back to single digit levels. But they have now returned to the teens,”  said Gabriel.

In comparing our client’s experience with average medical trend, we relied upon Heffernan Benefit Advisory Services — 2013 Trend Report; Historical Trend Factors. Based on this report, we are using 9.615% as average annual medical only trend factor.

Political Subdivision — 400 Employee Lives
This case has been on RBP for 7 years. They experienced poor claim years in 2010 and 2012. In 2012, for example, there were 14 large claims that approached or exceeded $125,000. Medical PEPM for 2014 and 2015 (to date) is less than 2008. Benefits have been improved; no deductible or co-insurance features with all benefits subject to co-pays only. Funding increase over seven years has been 15.6% or 2.23% per year.

[Political Subdivisoin]
Public School District — 900 Employee Lives
This case has demonstrated a consistent downward claim trend. Current PEPM (2015) is less than 2008-2009. No benefit reductions. Some benefit improvements. Plan funding has remained essentially static for the past five years.

[Public School District]
Medical Industry — 280 Employee Lives
Plan year 2012-2013 experienced an outlier year with several large claims and 34 pregnancies. Current medical PEPM is 16% higher than under managed care plan in 2008-2009, representing a 2.66% increase per year (sans outliers). This illustrates that higher utilization and outlier claims will result in increasing cost which would occur under either managed care or RBP model. However, RBP trend factor continues below industry benchmarks.

[Medical Industry]
Retail Business — 818 Employee Lives
This case has consistently been well below medical trend. Current medical PEPM is significantly lower than plan year 2008-2009. This case has not raised plan contributions in seven years.

[Retail Business]
Conclusion
Managed care has failed. Medical costs continue to soar. Providers are charging more and we continue to agree to blindly pay up through secretive contracts negotiated by vested interests. Medical trend has, and continues to be, consistently at double digits or close to it.

Cost plus insurance / reference based pricing is a proven method to maintain and even improve comprehensive coverage while at the same time keeping costs reasonable, predictable and consistent. Industry sources estimate reference based pricing plans represent 10% market share and rising. An east coast hedge fund, seeking opportunities in reference based pricing models, predicts reference based pricing will gain 60% market share within the next five years.

“What moves things is innovation. But it’s not easy to innovate in stagnant, hyper-regulated, captured sectors” – Max Borders ( www.fee.org<https://t.e2ma.net/click/hcsgk/l7ixcb/lf924f> ) Cost shifting under the Affordable Care Act will continue to fail to control costs.

Reference Based Pricing represents the last frontier in innovation to control health care costs in a tightly regulated and controlled market.

Plan sponsors can reasonably expect to reduce their health care costs below medical trend without benefit reductions or cost shifting of any kind.