What is the difference between referral-based pricing and fair pricing? | EBA
Welcome to Ask an Adviser, EBN’s weekly column in which brokers and benefit advisors answer (anonymous) questions sent in by our readers. Looking for expert advice? Please submit your questions to [email protected]. This week, we asked Arthur Chapman, Director of Reliant Health Partners, to comment on the following: What is the difference between benchmark pricing and fair pricing?
Since employee health benefits are typically among the top five profit and loss expense, the quest to reduce this cost is intense. The so-called usual, customary and reasonable prices charged for services by providers in their particular region increase as they see the need to raise prices, adding to inflationary pressures.
In recent years, referral-based pricing (RBP) has made its way into self-financing medical dietslinking prices to a Health Insurance base rate plus an additional percentage. These plans have helped lower the medical cost curve for self-funded payers. RBP can be included in the plan design as an off-network (OON) only claim payment method or it can be used to replace the mainnet.
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This positive cost impact is accompanied by an offsetting disruption in many cases, as medical providers sometimes charge plan members for the balance of payments, shifting the cost of the plan to the member. Depending on the support provided by the plan and/or the RBP provider, this can put enormous financial pressure on the member, which can lead to dissatisfaction within the group.
Two hospitals across town can have very different cost structures, resulting in higher charges for just one when the same service is performed. Applying the Medicare rate plus a percentage depending on the design of the plan to each of these elements may provide a reasonable payment to Hospital A but not Hospital B, resulting in a balanced bill.
Fair Market Pricing (FMP) provides an alternative solution for paying for medical coverage for members of self-funded schemes and also bends the cost curve downwards. FMP can be used to rate only OON claims or override the network and rerate all claims. The basis of the FMP is reported data, based on geographical and vendor-specific landmarks.
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In the above case with two hospitals performing the same procedure across town from each other, claim pricing is customized to account for the different cost structures. This leads to a higher acceptance rate and avoids some of the disruption that comes with balance bills.
Using the FMP allows the covered member to choose any doctor or facility without the constraints that may be in place with the traditional network or the wrap network – and all at no cost to the beneficiary.