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Saturday, February 8, 2025

State Highlight: The Use Of Supplier-Based mostly Reference Pricing In Oklahoma And South Carolina



By Sabrina Corlette and Karen Davenport

State worker well being plans (SEHPs) have wrapped up their open enrollment intervals for plan 12 months 2025. Many state employees received some dangerous information about hefty premium hikes within the course of. Like different employer well being plans throughout the industrial insurance coverage market, SEHPs are dealing with important will increase in well being care prices. These will increase pressure states to decide on between drawing extra closely on tax income to cowl these prices and shifting extra prices to state employees and their households.

SEHPs can pursue a wide range of avenues to constrain price development, and one technique—also known as “provider-based reference pricing”—has been gaining traction. A current examine estimates that the usage of this kind of reference pricing would have saved as much as $7.1 billion throughout all SEHPs in 2022. This 12 months, Washington State’s Workplace of the Insurance coverage Commissioner advisable provider-based reference pricing for that state’s SEHP, following related—and profitable—current initiatives in Oregon and Montana.

In our surveys of SEHPs’ price containment efforts, we discovered that 9 state plans use some type of provider-based reference pricing to determine reimbursement charges for well being care suppliers. On this article, we deal with the teachings realized from the SEHPs in Oklahoma and South Carolina, each of which have lengthy used government-set charge schedules to pay taking part suppliers.

Defining Phrases: What Is Supplier-Based mostly Reference Pricing?

On the subject of medical health insurance, there are completely different types of “reference pricing.” One type is a profit design technique to steer policyholders to lower-price in-network companies. The state worker well being plan of California (CalPERS) is well-known for pioneering this technique. The plan surveys costs for particular elective companies inside geographic areas and determines a cap or “reference value” as the utmost it can pay for that service. Plan enrollees who select to obtain companies from a supplier that expenses the next value than the reference value should pay the distinction. This type of profit design-based reference pricing shouldn’t be the main target of this put up.

Relatively, we zoom in right here on provider-based reference pricing: The plan pays taking part suppliers a non-negotiable, established charge that is the same as or a share of a reference charge, equivalent to the worth Medicare pays for a similar service. This strategy is kind of completely different from plans’ frequent technique for establishing supplier reimbursement ranges, which is to barter a reduction off the supplier’s record costs. There’s broad consensus within the financial literature that these record costs are dictated extra by a supplier’s market energy than by the fee or high quality of these companies.

A plan can implement provider-based reference pricing by figuring out an higher restrict or cap on the charges the well being plan pays for specified well being care companies. That is the strategy of Oregon’s SEHP, which caps in-network hospital charges at 200 p.c of the Medicare charge. It will also be applied through a government-set charge schedule for supplier companies, as is the strategy of SEHPs of Oklahoma and South Carolina.

Reviewing The Proof: Price Financial savings From Supplier-Based mostly Reference Pricing

Of the 9 SEHPs in our survey which have provider-based reference pricing, solely two have benefited from public-facing analyses of their price impression. A current peer-reviewed examine of the Oregon SEHP’s reference pricing program for hospital companies discovered that it saved the plan $107.5 million within the first 27 months of this system. Equally, an unbiased examine on Montana’s reference pricing program concluded that this initiative saved the SEHP almost $48 million from state fiscal 12 months (SFY) 2017 by means of SFY 2019, following its 2016 implementation. Nonetheless, in 2022, the state moved to regulate this system to permit Blue Cross Blue Protect of Montana, the newly contracted plan administrator, to exceed the reference pricing cap in sure circumstances (though what these circumstances may be has not been publicized). It isn’t clear whether or not that transfer will have an effect on future spending development. This 12 months, Washington State’s insurance coverage division has projected that if the state’s SEHP applied a reference value of 160 p.c of the Medicare charge for supplier companies, it will cut back medical spending between 3 p.c and 19 p.c.

Highlight On South Carolina and Oklahoma And Issues For Different States

South Carolina and Oklahoma reported in our 2022 survey of SEHPs that they set the costs for the suppliers with whom they contract. Each states report that their costs fall between Medicare’s charge schedule and the prevailing industrial charge. Though there have been no exterior evaluations of the usage of provider-based reference pricing in these states, each SEHPs report that the technique has generated important financial savings for the plan, its members, and state taxpayers.

These financial savings don’t seem to have affected enrollee entry to care, as directors in each states describe networks with broad supplier participation. Due to each plans’ giant memberships, they can use their market energy to persuade hospitals and physicians to take part. Moreover, officers noticed that as a result of they cowl schoolteachers and different public servants, suppliers of their state have been typically sympathetic concerning the want for decrease charges. Certainly, in Oklahoma, officers reported that 99.3 p.c of hospitals and 80.0 p.c of physicians take part within the SEHPs’ community. South Carolina’s plan has one hundred pc hospital participation and greater than 99 p.c of physicians (though they don’t instantly contract with behavioral well being suppliers). South Carolina officers famous that suppliers like working with the SEHP as a result of it’s a “immediate payer” and gives beneficiant protection.

South Carolina and Oklahoma officers have additionally discovered that reference pricing is comparatively straightforward to manage. As one administrator put it, “When a brand new hospital opens, we attain out and supply our charge schedules. As a result of we don’t have a negotiation course of, there actually isn’t something to barter.” One other noticed that the usage of a charge schedule makes it very straightforward to for the plan to calibrate its spending over time and to assist maintain price development in examine.

Plan enrollees additionally profit from these SEHPs’ success in constraining supplier value development, as these states have much less must shift prices to employees by means of greater premiums and deductibles. State workers in North CarolinaMontana, and Oregon have been vocal proponents of reference pricing proposals.

Potential Challenges

Regardless of the advantages, SEHPs in search of to undertake reference pricing can face a number of challenges. First, quite a few states have diluted their market energy by separating completely different teams of state employees into completely different plans. For instance, many states have separate plans for presidency employees and faculty workers. Others have separate plans for state and municipal employees. These states could must consolidate these plans into one, or work in tandem on buying methods, to successfully counter the inevitable resistance from hospitals and different suppliers.

Second, even in states the place the SEHP is consolidated and the biggest employer within the state, SEHPs could face challenges getting hospitals to conform to the reference value. Montana’s effort encountered stiff resistance from hospitals and required a public relations strain marketing campaign to persuade holdout hospitals to signal community contracts. The proposal from North Carolina’s SEHP to determine reference pricing foundered when hospital lobbyists satisfied legislators to reject it. Nonetheless, current information that the SEHP is dealing with a lack of greater than $106 million has prompted some advocates to revive requires a reference pricing program.

Third, the third-party directors (TPAs) that many states use to design and administer their supplier networks and course of claims could oppose or hinder a transfer to reference pricing, notably because it successfully reduces the TPA’s function in community design. The Montana SEHP, for instance, needed to sever its relationship with its long-standing TPA to maneuver ahead with its reference pricing program. SEHP officers responding to our survey report experiencing foot-dragging and resistance from TPAs over different cost-control methods they’ve tried to implement; they might encounter related reactions to a reference pricing initiative, requiring a shift to extra agile and prepared companions for this effort.

Lastly, a trade-off that SEHP directors may have to contemplate is whether or not, or to what extent, a reference pricing program and its reliance on a fee-for-service reimbursement chassis inhibits the usage of different or modern fee fashions. Such fashions can promote inhabitants well being administration, high quality enchancment, and whole-person care. Reference pricing mustn’t preclude such efforts, however plan directors should contemplate how the 2 sorts of fee strategies can coexist.

Wanting Forward

The price of employer-based insurance coverage is rising at an unsustainable tempo, and SEHPs should not immune from price pressures. The first driver of those price will increase is excessive and rising supplier reimbursement charges. The lack to maintain these charges down is forcing troublesome selections for employers, resulting in greater deductibles and price sharing and an epidemic of underinsurance. Certainly, 23 p.c of individuals with year-round medical health insurance are thought-about underinsured; 66 p.c of those people are lined by means of an employer-based plan.

For SEHPs, provider-based reference pricing could be a viable technique to constrain price development, preserve the worth of protection for employees, and generate financial savings for taxpayers. The success of reference pricing in states as various as Montana, Oklahoma, Oregon, and South Carolina means that it may be replicated in a variety of states. Moreover, a state-led reference pricing program holds the potential to be leveraged by private-sector employer purchasers, who’re equally determined for a solution to maintain prices in examine and preserve inexpensive protection for employees and their households.

Writer’s Notice: The authors’ time drafting this put up was supported by a grant from Arnold Ventures.

Sabrina Corlette and Karen Davenport “State Highlight: The Use Of Supplier-Based mostly Reference Pricing In Oklahoma And South Carolina,” January 28, 2025, https://www.healthaffairs.org/content material/forefront/state-spotlight-use-provider-based-reference-pricing-oklahoma-and-south-carolina. Copyright © 2025 Well being Affairs by Challenge HOPE – The Individuals-to-Individuals Well being Basis, Inc.

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