REFERENCE PRICING … SILVER BULLET OR PRICE REGULATION?

The world health organization defines reference pricing as: “not a form of price regulation; it is a means of limiting expenditures by looking at market equivalent pricing …and setting a reimbursement tariff (termed a reference price).”

Many healthcare theorists, third party administrators, and insurers are stating the belief that reference pricing strategy should be used to achieve the end of controlling cost and simplifying administration. This is still subjective, but the data to develop reference pricing is becoming more accessible, whether through releases by the Centers for Medicare and Medicaid Services or the pending 2015 tool from the Health Care Cost Institute. Data access is not complete, but the potential for an alternative to charge information is growing rapidly.

Michael Abrams, a managing partner at Numerof & Associates in St. Louis and Co-author of the 2013 book Healthcare at a Turning Point: A Road Map for Change, believes that patients will be better served by the transparency of reference pricing. He also notes limitations to the strategy. The strength is the application for big-ticket items and with standardization.

It seems to PDA and The Flagship that it does nothing for over-utilization and is needs to prove the concept works with variations of services. Also, there is some anxiety over payors seizing this concept for a money-saving strategy. The calm relationships desired with providers could become quite tumultuous if application is heavy-handed. Still, concern over premium costs and a push for simplicity could neutralize concern of provider relations.

WellPoint, the second-largest insurer, has turned to reference pricing as of January 1st, 2015. It is interesting that WellPoint will offer set prices for 900 medical services. That is a large field of services.

Employers may also look to reference pricing as an option to lower or hold the line on premiums. They in-turn predictably will pressure the insurance companies and exchanges. This methodology may well slide into the small group market of benefits. That is interesting because it indicates how the industry is changing. When the Joint Venture PHO was operating with such high success (Pre-Genesis), the partnership maintained 900 codes as a target for acceptable reimbursement. Now, WellPoint is about to turn the concept around with the pricing pointed at providers. Things do evolve. More to follow on this potentially significant evolution of payment.

This also again drives home how import the success of The Flagship Physician Network is to the independent physician. Independent physicians and a small group benefit strategy can still sell quality and personal service.