Controlling healthcare costs with Reference Based Pricing.

Amy Utterback:
Hey everyone and welcome back to For Your Benefits, a podcast where we cover trends in employee health benefits, healthcare, company culture, employee engagement, and more.

My name is Amy Utterback and I’m the Vice President of Business Development with SentryHealth. And I’m going to be your host for today’s episode as we dive into the topic of Reference Based Pricing as an alternative to more traditional carrier-based health plans.

With me today, are two industry experts on the topic. I have Ed Dillabough. Ed has been in and around the healthcare market for 40 years. He served as regional vice president at Cigna, where he managed a staff model providing medical pharmacy, optical, and vision to over 65,000 members. He then went on to be an executive director at UnitedHealthcare working with HMOs and PPOs. And in 2001, Ed founded a medical advocacy program he called MAP Health as a resource for driving patients to high-quality, affordable healthcare. MAP Health has since become a part of SentryHealth, and Ed continues to work with SentryHealth and other companies as a trusted advisor and consultant.

Welcome, Ed. Thank you for joining us.

Ed Dillabough:
Thank you. Glad to be here.

Amy Utterback:
Also, I have with us today, Scott Crawford. Scott brings over 35 years of industry experience. Scott also cut his teeth by working with some of the large group insurance carriers in major markets, but he’s now the owner of Anchor Health Benefits Consulting, a third-party benefits administrator and consulting firm out of Maitland, Florida. They also have some offices in St. Petersburg, Florida.

Anchor has been around for more than 20 years providing customized benefits programs and services. In everything from flexible spending accounts to medical expense reimbursement accounts, VEBA administration. And of course, their main focus is on self-funded benefits programs that can include network-based plans as well as Reference Based Pricing programs. And at Anchor, they actually call that program value-based pricing. We’re going to dig into that a little more deeply here in a few moments, but in the meantime, Scott, welcome. Thank you for joining us.

Scott Crawford:
Thanks for having me.

What is Reference Based Pricing?

Amy Utterback:
And I can’t wait to pick both of your brains on this topic that I know can be such a powerful strategy for employers, but I think it could also be really misunderstood. So, to start off, I thought let’s, for our listeners who are maybe not familiar with what Reference Based Pricing is, can we have one of you explain the basics of a Reference Based Pricing strategy.

Ed Dillabough:
Reference Based Pricing is nothing more than understanding what we’re paying for health insurance. So health insurance has always been kind of unknown as to how providers are being paid, and it’s a benefit between the in-network or out-of-network arrangements. What we’re saying here is that it’s been kind of broken. And with Reference Based Pricing, you know exactly approximately what everybody’s paying the providers. And you have to go through your navigation system, which in this case would be through Sentry and they would help you identify the doctors and hospitals to go to so that you don’t have any misunderstanding about balance billing or what portion you would have to pay. So it’s a known entity as to how the pricing of services are rendered. And you can find out before the services are provided.

Scott Crawford:
The good news with Reference Based Pricing is that, with the negotiation process through dealing with facilities and doctors, the reimbursements to those, both facilities and doctors, are substantially lower than they would be with a commercial carrier. That’s why this approach to healthcare is becoming more and more popular. Employers can save a substantial amount of money utilizing a reference-based company.

Best candidates for Reference Based Pricing

Amy Utterback:
If I were an employer interested in learning more about Reference Based Pricing or just looking for ways to affect my healthcare spend, who should be considering Reference Based Pricing? Should all employers consider Reference Based Pricing? Or, are there employers that are better candidates than others?

Scott Crawford:
We’ve been now in this field for 5, 6, 7 years, and it has been a maturation process over that period of time. And I will tell you that two things have to happen with Reference Based Pricing. Employers have to understand what they’re getting involved in. They have to recognize that there are going to be negotiations taking place with facilities and providers. They have to understand that their employees have a navigational tool to get to a benefit level that has increased over what you would get from a commercial carrier, but there’s obligations that they need to deal with. And that being said, the employer has to get behind the Reference Based Pricing concept and make sure that the employee base understands exactly what the company is getting into. And the education process is substantial. Employees have to know how to navigate the system to receive the benefit levels, which are again, increased substantially over what the market would bear.

Amy Utterback:
Scott, do you sometimes guide folks that are maybe interested in Reference Based Pricing? Maybe they haven’t been self-funded very long, or they’re not even self-funded yet. There’s a kind of a graduated process sometimes to getting into Reference Based Pricing. Would you agree? Do you think that’s a good strategy?

Scott Crawford:
We’re in a unique situation working at Anchor. We have the ability to provide a network-based program alongside of a value-based pricing program. And this allows employees to make a decision as to whether they want to stay with a network-based program, higher deductibles, or higher out-of-pocket maximums, but utilize a network-based program or a traditional network-based program. Or they want to involve themselves in a value-based pricing concept where they would reap the benefits of lower out-of-pocket maximums through co-pays. And we all know the freedom of choice wins out. So offering both options is a good way for an employer to get into the Reference Based Pricing arena.

Ed Dillabough:
So really anybody who’s self-funded today or has considered self-funding in the past should consider looking into a Reference Based Pricing program. Whether it’s a single option or a dual option, as Scott was saying, where they’re offering a carrier alongside the reference-based program.

Scott Crawford:
The difference just right off the bat is that reinsurance companies recognize the value of Reference Based Pricing versus a network-based program. And right off the bat, the carriers we’re working with give us substantial discounts for our Reference Based Pricing program. And when I say substantial, you’re looking at probably 30% to 40% of a difference between a traditional network-based program and a Reference Based Pricing plan.

Amy Utterback:
So, I think you kind of answered one of the questions that I was going to lead into, Scott. You did a good job of lining out some of what the responsibility of an employer interested in moving forward with Reference Based Pricing would be, as far as being willing to recognize what is going to fall upon them.

Benefits of Reference Based Pricing to Employers and Employees

Amy Utterback:
You also just mentioned some of the cost savings that obviously is a benefit of Reference Based Pricing for employers. Aside from cost savings, are there any additional benefits to going that route of Reference Based Pricing?

Scott Crawford:
The way we are set up, we’re providing a value-based pricing program versus a Reference Based Pricing program. And the value proposition here is that we’re looking for the best doctor or healthcare provider to solve the employee’s problem, one time. So we offer this service to employees so that they can deal with SentryHealth. SentryHealth does some research for them to find, let’s say the best knee surgeon in the area so that they can go have their knee replacement done one time.

From a cost control standpoint, that means an employer wins, because the knee is done one time, and doesn’t have to go back for a replacement knee. So that’s one advantage. The other advantage is we oftentimes pay facilities and/or providers up front prior to the procedures being done. So we need the buy-in from the employees. And the buy-in comes in the form of a co-pay. And the co-pays are in the neighborhood of $500 or $250 on an outpatient basis. So conceivably, a woman could have a baby, the birth of a child, for $500. Staying in the hospital for two days, normal delivery, and the out-of-pocket expense would be $500.

So, you could see where the employee benefits through the navigational system. But they would be working with MAP (now SentryHealth) and MAP (now SentryHealth) would be helping, or SentryHealth would be helping the employee get the best provider to solve the problem.

The Member Experience and Reference Based Pricing

Amy Utterback:
And Ed, do you want to describe, since you helped to design that program, what was the MAP program, and it’s now part of SentryHealth, how that works together with a Reference Based Pricing program or value-based pricing like Anchor? What are we doing on the backside to help facilitate a group that is under Reference Based Pricing and how that member experience would look?

Ed Dillabough:
Now, a lot of all this started with the fact that nobody was talking to the consumer. The carrier system, network system, talks to the provider, never talks to the consumer. And so, with this system that Sentry has developed like with Anchor, we have the ability to go out and talk to the consumers. Educate them, understand the program, understand how, when they call in they’re going to get information, not just about the best doctors that we just described on a total knee replacement, but they would also understand more about what they’re getting themselves into. What outcome is expected from this procedure. And probably most importantly, how to talk to the doctor about this procedure. And what kind of questions you should be asking and understanding so that you’re going to be a more informed consumer when you go about getting your own healthcare services.

And I think that is the key right there, is just education. That these programs are designed to educate and help navigate the consumer, whereas the carrier system is only interested in letting the consumer do whatever they would like. And it’s not necessarily the best for the consumer. So the interest of the consumer is first and foremost in educating them as to how to navigate the delivery system. It’s the key element, I think, of in these programs.

Scott Crawford:
Again, that’s the value proposition that we were talking about. The consumers benefit from SentryHealth supporting their efforts.

Key Features of Reference Based Pricing Plans

Amy Utterback:
That’s a great point. I did want to also ask, if I were an employer or if I’m a broker and I’m new to Reference Based Pricing, what should I be looking for in the right program? How do I identify the right program? What services need to be there? What would you guys recommend?

Scott Crawford:
One of the areas that has been abused under the Reference Based Pricing scenario is the fact that administrative costs have been very, very high. Some of the companies that started out early on and have continued are charging exorbitant amount of administration costs. You’re getting the benefit to a certain extent of claims controls, but for the administration of those claims controls, you’re paying an exorbitant amount of administrative fees. So an employer needs to look at those costs in relation to how other companies provide Reference Based Pricing programs and their administrative costs.

Just to give you an example, there are companies out there that use a percentage of savings off of billed charges versus the end negotiated rate, and the percentages are rather high. Other companies are doing this on a per-employee-per-month basis. So you know exactly what your fixed costs or your administrative costs would be.

Ed Dillabough:
I think one of the things about these programs that a broker should be concerned about, and when they examine the different programs is, how does any program identify the best doctor? Is it program A that says, “I’m going to give you the doctor that’s the most cooperative.” Or B, “I’m going to give you the doctor that gives me the best price.” Or is it C, that we follow, that we take a blend of identifying who is the best doctor based on outcomes? And that includes volume, how many procedures they did. You look at mortality complications and how many outlier cases. And you can re-credential the doctor and you’ll find out that less than 10%, 15% of the doctors in the community will meet our criteria. And also, is cost-effective. And also, are going to give you…we’re not going to have to deal with the balance billing issues. So, you know, “you pay me now”, “pay me later”.

So the issue is, is how to proactively deal with the patients. And that’s what brokers need to evaluate. How proactive is any organization dealing with my clients’ membership? And what criteria do you use in identifying doctors and how do you go about understanding the value aspect of the different programs that are out there?

Scott Crawford:
Ed hit on one other area that I think is really important. A lot of the Reference Based Pricing carriers out there are negotiating with the provider after the fact. And that leads to potential balance billing and demand letters from the facilities. You have less of an ability to negotiate after the procedure’s been done. We take a stance on going after providers up front, prior to the procedure being done, and getting significant discounts for prompt payment, or what we call a direct pay system. And that avoids balance billing. Balance billing again can be a big problem if carriers are dealing with facilities after the fact, after the procedure’s been done.

Care Navigation and Reference Based Pricing

Amy Utterback:
And do you address that through the medical advocacy and the navigation piece?

Scott Crawford:
That, again, is a SentryHealth-Anchor coordinated effort. It’s done through pre-cert which SentryHealth provides. Sentry’s services are very extensive. They provide not only an advocacy program, they provide case management, they provide pre-cert work, and also now a telehealth program. And this is all under one roof. Where a lot of our competitors have various companies or vendors trying to coordinate all of these services through different vendors. We’ve got a distinct advantage in the marketplace with SentryHealth having all of these services under one roof.

Ed Dillabough:
So, in other words, when we talk about coordination, I think it’s important for brokers and employers to understand when somebody does a pre-certification, it’s usually for medical necessity. And where this program does that obviously, but it also goes a little bit further. It identifies whether or not the consumer actually called and talked to a Sentry nurse, and was assisted, and is going in the right direction. If they’re not going in the right direction, there’s an outreach and there are discussions with that consumer (not the doctor who is usually doing the pre-cert, but with the consumer) making sure they understand what they’re getting themselves into…

Amy Utterback:
Yeah.

Ed Dillabough:
And understand their financial responsibility.

Or you can look at case management and when you’re dealing with a person in case management, the nurse is usually assisting the consumer and helping them. But what most of them don’t do, that Sentry and Anchor are doing, is identifying the physicians that would probably be best suited to assist and help that consumer get the best outcomes. Again, it’s navigating the individual person and ensuring that they’re getting the right care.

Amy Utterback:
Well, and it sounds like having also really an ecosystem of whether it’s vendor partners that work collaboratively and really will dig in and get involved with the group and with the members and help to educate and really guide through the process.

Scott Crawford:
Yeah, there’s a huge amount of coordination that has to take place. We’re acting as the insurance company at the same time providing this Reference Based Pricing product. And everybody has to be talking to each other. All of our systems are coordinated and we have a very unified approach to the consumer, as Ed has talked about. Our telehealth program is tied into MAP (now SentryHealth). MAP (now SentryHealth) is tied into Anchor, the PBM is tied into the process, and it’s one cohesive operation. And this has come from, again, a maturation process over the years. You know, finding out that these vendors all need to work together and all talk to one another to make a cohesive product for the consumer, as Ed has pointed out.

What advice would you give employers who are considering adding Reference Based Pricing?

Amy Utterback:
As we start to wrap up today, what advice would the two of you give to employers who are considering adding Reference Based Pricing to the benefits plan?

The quality benefits:

Ed Dillabough:
As a broker, if you’re happy with the premiums that your client is paying, you don’t have to look at Reference Based Pricing. But if you’re concerned about costs, that’s what usually motivates people to look at Reference Based Pricing. But what you really should be looking at is the quality of care, since this is a benefit you’re offering your employees. How is the benefit structured and managed to get the individual consumer the best medical care? And Reference Based Pricing, obviously the way we’ve designed it, helps the consumer and encourages the consumer to change the way they’ve approached purchasing medical care. And they’re finding out that by being proactive, they’re getting better care at a lower price.

Financial Benefits of Reference Based Pricing

Scott Crawford:
Well, while Ed’s touched on the quality of aspects of this thing, getting back to what I said originally about the financial side of things. In today’s environment, employers are looking at cutting costs and brokers need to be aware of this avenue. Because when you’re looking at a 30% reduction in premium, a $2 million account, you’re looking at $600,000. So a substantial amount of premium dollars that are left on the table, if people are not looking at Reference Based Pricing. Brokers are not looking at Reference Based Pricing and showing it and presenting it to their clients.

Amy Utterback:
Well, I appreciate both of you sharing your perspectives on this. I know you’ve spent a lot of time in the industry. I really respect your knowledge and your expertise and bringing that to our listeners today. If people want to reach out to you if they have additional questions, what’s the best way to contact you, Scott?

Scott Crawford:
My phone number is (727) 726-1964 and I’m at extension 251. My email address is [email protected]

Ed Dillabough:
And the best way to get a hold of me is, [email protected]. Or you can reach me by cell. Cellular phone number is (727) 535-5400.

Amy Utterback:
Well, that does it for today’s episode of For Your Benefits. Thanks again to Scott and Ed for joining us. And thank you our listeners for tuning in. If you’d like to learn more about SentryHealth, you can check us out at our website, sentryhealth.com. Thanks, everyone, and have a great day.