Health care costs rise each year. For the companies that are frustrated by runaway prices, health benefits are an operating expense that demands additional financial resources every 12 months. You can stop this trend. You can turn your health benefits into a capital expenditure you control from one year to the next.
The possibility lies within reference-based pricing, a strategic, data-driven approach to health benefits available to companies with self-funded plans. With reference-based pricing, companies can slash their Medical Expense Per Employee Per Year (PEPY), a metric for measuring how much money a company spends on health insurance for each employee. Under the right circumstances, companies can dramatically reduce their PEPY, sometimes by as much as $5,000, meaning they save more than $400 a month per employee on health benefits. To access such dramatic savings, companies may adopt reference-based pricing among other strategies and solutions.
How Reference-Based Pricing Influences PEPY
Reference-based pricing grants a company greater control over its plan, paving the way for high-quality, low-cost care for its employees. Unlike fully-funded plans where employees are locked into a health network (and its physician and hospital contracts do not allow for quality-graded referrals), reference-based pricing unlocks the system with open access to providers and the data necessary for making informed health care decisions.
Having data on your side, you and your employees can enjoy multiple advantages, including:
- Provider Quality – Your employees can access and receive treatment from the best doctors, surgeons, and specialists.
- Facility Quality – Your employees can access and receive treatment from the highest-rated hospitals and facilities.
- Prescription Tools – Your employees can access prescription medications at lower costs, with many scripts available for free.
- Results-Based Care Management – Independent medical management improves understanding and expected outcomes for members by serving as a concierge for patients facing medical decisions.
Placing an emphasis on high-quality care for better outcomes means the cost of treatment is frequently lower versus lower-rated facilities or doctors. In addition, low-quality care often results in errors and poorer medical outcomes, complications, re-admissions or longer hospital stays and recovery periods, extra follow-up appointments, and additional medications to manage pain or postoperative infections. When more care is required, overall costs are higher.
Case Studies: Eliminating Unnecessary Spend
Clients want to implement strategies and solutions to improve quality and reduce the frequency and severity of claims. Reference-based pricing delivers the control companies and employees need to make impactful health decisions while reducing costs. Over the last two weeks alone, we encountered two major opportunities for reference-based pricing to slash expenses.
Example 1: Reducing Costs For Medical Procedures
One of our clients has an employee who needed a spinal fusion. The bill from the surgery and three nights in the hospital will typically cost $32,000 in their region, but their partially self-funded plan provided opportunities to reduce costs to $6,800, saving a total of $25,400 on a single procedure. In addition, the quality score on the surgeon is 57of 100, with another spinal surgeon in the same practice scoring a 92 of 100. He chose the 57 of 100, even though he was educated about the scores.
Example 2: Reducing Costs and Complications found in Medications
One fully-insured prospect I recently met has one employee taking 25 different prescription medications. We sometimes refer to this as “carrier abuse.” The group has zero care management and some of these medications counteract each other, and a couple of them each cost more than $1,200 per month. With the available data, we study reports to pinpoint opportunities to work with this individual to coordinate with her doctors and eliminate unnecessary medications for her and reduce or eliminate the cost paid on every Rx she takes. Independent Care management can see data for pricing medical visits, coordinating physician services, and managing over-prescribed meds and other excess expenditures. This patient and her company can enjoy better healthcare outcomes with less risk at a lower price.
Reference-Based Pricing For Major Savings
Reference-based pricing can be an effective way to lower your annual expenses without reducing headcount at your company. Consider your health benefits a capital expenditure. Demand that your plan performance be set up to measure success monthly and watch your PEPY go down. Plug the profit leak and who knows? Imagining the positives a well managed benefit plan generates, a person may face one important question: What should the company do with the savings?