Daily Archives: July 16, 2019

Reference Based pricing in action

When Pacific Steel & Recycling CFO Tim Culliton realized his 750 employees were paying too much for healthcare, he knew the company needed a new plan.

So instead of renewing their current fully funded insurance plan, the Great Falls, Montana-based company, fired their third party administrator and switched to a self-funded plan with a PPO network. They also decided to try reference-based pricing — a highly debated method among benefits advisers for curbing employer healthcare costs.

Working side-by-side with their adviser, Scott Haas of USI Insurance Services, the employer instituted a reference-based pricing strategy in January 2014. So far, the program has led to a reduction in the cost basis of medical claims, Haas says. The pair were able to lower the company’s annual health spend to $3.5 million from $8 million, a savings of about $5 million.

“We saw a significant increase in hospital charges,” Culliton says. “We saw a 400% increase in those costs … that caused us to begin to investigate a different payment process. That ultimately was the beginning of us moving to a reference-based pricing program.”

Reference-based pricing refers to pricing outside what is set by traditional insurance carriers. Provider reimbursement is based on a percentage of what Medicare would typically pay the provider which often ranges from 120% to 170% of Medicare reimbursement, according to Business Benefits Group.

Some employers have been using reference based pricing as a way to curb high healthcare costs. But not everyone is entirely convinced. In an interview with Employee Benefit News, Jake Frenz, CEO of the PBM SmithRx says implementing a reference-based pricing model may be easier said than done.

Washington Targetting Drugmakers?

NEW YORK/WASHINGTON — The Trump administration on Thursday scrapped one of its most ambitious proposals for lowering prescription medicine prices, backing down from a policy aimed at health insurers and raising the possibility of new measures focused on drugmakers.

The abandoned proposal would have required health insurers to pass on billions of dollars in rebates they receive from drugmakers to Medicare patients.

The decision represents a new setback to U.S. President Donald Trump’s efforts to deliver on a pledge to lower drug prices for consumers before the November, 2020 elections, when Republicans want to capitalize on voter concern over high healthcare costs.

It allows companies like Cigna Corp and CVS Health Corp, which negotiate rebates with drugmakers on behalf of the government’s Medicare program, to continue to benefit from those discounts.

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Reeve Conover is a Registered Representative. Securities offered through Cambridge Investment Research, Inc., a Broker/dealer member FINRA/SPIC. Cambridge and Conover Consulting are not affiliated. Licensed in SC, NC, NY, CT, NJ, and CA.
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