Reference Based Pricing: An Interview

Reference based pricing is becoming more popular as a way to control health care costs.  I am pleased that Eric Meyerhoff from ELAP Services agreed to answer a few questions about reference based pricing and his company.

PM: Hi Eric. We appreciate you taking the time to answer a few questions. Can you start by telling us a little about ELAP Services and what you do?

EM: ELAP Services’ referenced-base pricing solution (RBP) is the only RBP solution that is backed by over a decade of experience. ELAP partners with employers who seek to reduce their healthcare costs by establishing reasonable claim limits and auditing all provider claims.  ELAP assures fair and reasonable payments are made to the medical provider.  The benefits of partnering with ELAP extend beyond the cost savings – employees see reduced costs, and they benefit from industry leading member advocacy. Clients will see 20-30% savings in their first year.

PM: For those that don’t know what reference-based pricing is, can you explain it in a few sentences?

EM:  Reference based pricing is a method of reducing the cost of medical claims  by auditing and repricing every hospital/facility claim to a fair and reasonable cost. ELAP uses two clear and defined metrics as references. The first and probably most used is Medicare.  Any hospital/facility that accepts Medicare has to publish those payments with Centers For Medicare and Medicaid Services (CMS). For example, the average payment for a CT scan is $200 from Medicare. ELAP would look to reimburse the facility 20% above the Medicare payment.

The second metric we use is cost. It’s the self-reported total burden cost a hospital/facility has to report to CMS. It’s the bottom line for a hospital/facility on what it truly costs them to perform that service. So, using a CT scan again, some facilities report that it only costs them $110. ELAP would reimburse them cost plus a 12% profit. So, we actually pay that hospital/facility the greater of the two.

PM: If ELAP is paying a facility 20% above what Medicare pays or 12% above profit, how does that compare to a typical contract that a facility has with a health insurance carrier?

EM: Remember, we don’t look at discounts from made up charges, we look at actual costs. Our payments are a fraction of what the contracts are between hospitals and carriers.

PM: How do hospitals and facilities respond when they are told they are going to be paid much less by a patient’s plan than what they are accustomed to?

EM: Depending on the state, the majority of hospitals accept the payment with absolutely no issue. Massachusetts and New Hampshire are states that have about a 4.6% balance bill rate. The benefit of dealing with ELAP is that we have member advocacy and legal support that goes into perpetuity. So, the members are never left hanging and neither is the employer.

PM: Knowing the balance bill rate is low is very helpful, as is knowing you have an advocacy team to help with this. Given that info, what percentage of claims result in a balance bill that the member actually has to pay?

EM: The 4.6% is the balance bill rate. So out of 100 claims; only about 5 will get a balance bill. And out of that 5 that get a balance bill, 4 of them would be resolved with one letter back to the facility. The remainder may need to negotiated.

PM: When an employer moves to RBP from a typically fully insured plan, what is the typical savings?

EM: Employers will see a 20-30% savings from their total medical spend. The employees will see a savings as well. Generally, the first year the employer keeps their same contribution strategy, and in the second year they usually pass the savings down via lower premiums, lower deductibles, etc.  Most clients see a flat to no increase year after year.

PM: What is the smallest and largest sized companies the ELAP can work with?

EM: We try to stay with groups of 100 or more. And we have some clients over 10,000 lives. I’d say our sweet spot is 300-5,000.

PM:  Thanks Eric.  This has been really informative!

If you’d like to discuss creative ways to reduce cost with your health plan, give us a call at (866) 724-0008 or click the link below.

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