New solutions emerging to control hospital costs

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Mindful of the growing popularity in name-your-own-price tools, benefit industry leaders and innovators are applying this approach to shopping for costly hospital services. They’re also wresting control of an opaque system and slashing prices at a time when self-funded health plans increasingly demand transparency. The movement is sure to catch the eye of brokers and advisers looking to help clients keep costs in check.

Although it’s been around for years, reference-based pricing has evolved from a pharmaceutical cost-control mechanism initially used overseas. It now can save self-insured employers 25% or more on their overall hospital spending, one expert suggests.

In a nutshell, the purpose of RBP is to settle or prevent balance-billing disputes involving huge unpaid hospital bills where the amount equals the difference between health plan reimbursement and provider charges.

A newer solution is relative pricing. It seeks to eliminate hidden or arbitrary fees by driving an algorithm that ranks more than 120 surgery procedures at more than 2,800 hospitals. Key metrics include quality, distance and price. Unlike RBP, which is determined by the health plan, this method is based on the average reimbursement in a particular locality.

Rob Pariseau, executive vice president and employee benefit practice leader at Lykes Insurance, describes the RBP concept as still in its infancy in the U.S. “I talk to stop-loss underwriters, and they say they’re just not seeing it,” he says, noting the need for more outrage over the way many hospitals charge for their services. Those long-time practices have been roundly criticized for hiding fees in fine print or varying widely from one facility to the next.

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Although fear has been expressed about employees who agree to RBP arrangements encountering credit problems stemming from unpaid balances, Pariseau explains that hospitals can’t by law report patients to a credit bureau. “There’s really no obligation to pay an unreasonable charge just because you signed that patient responsibility form,” he says.

RBP involves a negotiation with the help of an attorney. While a hospital might never agree to a rate of Medicare plus 20% prospectively, Pariseau says they could settle for it retroactively under RBP. “I think that the burden ought to be on the hospital for asking 10 times what they accept from Medicare every day,” he says. Conversely, the method can be used to head off balance-billing disputes by agreeing to an upfront price before services are actually rendered.

Turning the shopping process on its head
While most industry initiatives focus on price transparency, “they forgot the consumerism” aspect, says Tibi Zohar, co-founder and CEO of DoctorGlobe, which bills itself as the first online U.S. domestic hospital-shopping platform. His partner, Yori Landau, with whom he co-founded the company, did quite a bit of work for Orbitz before it sold to Expedia. Together, they seek to lower average prices across various markets by exposing hospitals that over-charge for their services.

In describing the premise of relative pricing, Zohar says “you can’t forecast what they’re going to charge. Even if you understand the network and have past data about claims, you still don’t know the future and how it will end up because every reimbursement is different.”

Tackling healthcare costs without also seeking to improve employee engagement and consumerism essentially rings hollow, he says. To help elevate the latter, his firm emphasizes the importance of “tempting rewards” that motivate meaningful changes in behavior. They can include anything from no out-of-pocket costs to bonuses tied to a percentage of savings generated by lower hospital costs.

Relative pricing mitigates the high cost of care by turning the shopping process on its head. Instead of following a surgeon’s recommendation per se, Zohar explains “we’re trying to first find a hospital that makes sense, and then either find the same surgeon or another one who’s even better in the new hospital. That’s because price is not determined by the surgeon, it is determined for those inpatient surgeries by the hospital.”

Zohar, a former financial-services professional on the pension side, describes brokers as his company’s No. 1 intermediary with whom to interact when promoting the relative-pricing method. His belief is that producers are much more nimble than, say, third-party administrators and should be “compensated very handsomely” and done so “in perpetuity” for these strategic consultations on behalf of employer clients.

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