Payors are using reference-based pricing (“RBP”) to cut health plan costs, saying goodbye to traditional participating provider (“PPO”) networks.
Reference-based pricing is a healthcare cost containment model that limits what a payor will pay a provider for healthcare goods and services. Most insurers these days use RBP for certain out-of-network benefits. However, this becomes problematic when a plan foregoes a PPO network for hospital services altogether and pays all services, including emergency services, using an unsupportable benchmark rate, typically based on a percentage of Medicare fee-for-service or the provider’s cost plus a minimal mark-up. The plans usually keep a PPO network for physician or other professional services to ensure their members can continue to see their preferred physicians. This occurs most frequently with mid-sized self-insured employer plans.
Generally, RBP products are sold on promises that providers will receive “fair reimbursement,” but pricing under this methodology is far from fair. According to a recent RAND Corporation study, payers typically pay hospitals approximately 250% of the Medicare fee-for-service rate for commercial services. Under the RBP methodology, however, providers are typically reimbursed a mere 120% of the Medicare fee-for-service. These rates are entirely arbitrary and do not reflect the usual and customary value of the provider’s services.
The hospitals are not the only ones that are harmed by RBP. These self-insured plans are not governed by state law; therefore, its members are not protected by the state’s applicable balance billing prohibitions. As of now, there is no federal prohibition against balance billing, and where the hospital is paid unreasonably low rates of reimbursement for emergent or elective services, the hospital has full authority to balance bill members. This puts patients at risk of potentially catastrophic out-of-pocket expenses.
Many third-party administrators for these self-funded RBP plans use logos on their identification cards associated with traditional insurance networks that lead hospital providers to believe that these plans are under contract with them. In turn, providers render healthcare goods and services to the plan’s members, thinking they will be paid under the contract with the PPO network, only to find out that the plan does not intend to comply with the contractual terms between the PPO network and healthcare provider.
In addition, some third-party administrators for RBP plans have engaged in fraudulent tactics in efforts to enforce reference-based pricing arrangements. For example, a third-party administrator may send a check to the provider for payment as “accord and satisfaction”, meaning that if the check is cashed, the provider agrees to accept the underpayment as payment in full. Third-party administrators have also strategically placed language in their bills requiring providers to accept the RPB; otherwise, the plan will reject the patient’s assignment of benefits to the provider. These tactics are used to strong arm providers into accepting unreasonable payments.
Although there is not much a hospital can do as a preventative measure concerning emergency services due to EMTALA, there are some ways they can reduce their exposure to underpayments by RBP plans for elective services.
First and foremost, it is imperative that the facility’s frontline workers, for example, patient registration and those responsible for scheduling elective procedures, know how to identify patients covered by an RBP plan through the patient’s identification card. Once a process has been put in place for identification, the facility can decide as to whether it wants to move forward with performing elective services.
Second, the facility can request that the parties enter into a single case agreement prior to rendering elective procedures. In these instances, providers should likely seek reimbursement that is comparable with the rates in their out-of-network rental network agreements.
Third, the hospital may stop accepting patients with RBP plans until the provider, and the RBP plan or third-party administrator can negotiate some type of out-of-network letter of agreement or other arrangement to ensure mutually agreed upon rates for services in the future.
Overall, RBP threatens the viability of our healthcare system. Unlike RBP plans, PPO networks are fair since they allow both the plan and the provider to negotiate a rate that is commercially reasonable for both parties. Additionally, network providers agree not to balance bill patients for more than the amount agreed upon between the health plan and provider, protecting patients from extensive out-of-pocket costs. Provider networks also allow health plans to select providers that meet certain standards to be a part of their networks. These standards take into account patient safety goals and credentialing standards and ensure that patients have access to high-quality and effective care.
In many instances, providers have become victims of unfair and deceptive practices by third-party administrators and self-insured payors pushing reference-based pricing. This has led to several lawsuits, mostly by providers against administrators and employer plans, which have included counts for the following: ERISA violations due to the plan document language failing to reflect the reference-based pricing arrangement; breach of an implied contract that was created between the hospital and the plan when services were provided; and misrepresentation and fraud where the plan misrepresented the payment amount as a percentage of the billed charges versus percentage of the reference price, as well as accusations of fraud relating to statements to participants that providers will accept the reference price payment as payment in full.