Obama administration okays reference pricing

The Obama administration gave the go-ahead for placing hard payment caps on certain medical procedures--a practice that could limit how much hospitals receive in reimbursement and place more strain on patients already struggling to cover out-of-pocket costs.

The practice, known as "reference pricing," would allow insurers to save money by capping payments to providers, the Associated Press reported. Payers would use reasonable payment levels to ensure that patients have access to providers.

The practice is a sharp turn away from the current system, which calls for most insurers to merely pay a negotiated portion of charges. Under reference pricing, the difference between the hospital charges and the insurer's payment is treated as the equivalent of an out-of-network expense. Under guidelines released by the U.S. Department of Health and Human Services, the amounts could exceed the out-of-pocket limits for insurance policies under the Affordable Care Act.

WellPoint engaged in a similar practice last year on behalf of the California Public Employees Retirement System by capping costs for certain procedures.

Reference pricing saves an average of $10,367 per knee or hip replacement procedure, according to a study by the Employee Benefit Research Institute (EBRI). "The problem ... from the patient's perspective is that at the end of the day, that is who gets left holding the bag," Karen Pollitz of the Kaiser Family Foundation told the Associated Press.

How this change would affect hospitals is unknown. Many facilities discuss with patients their out-of-pocket costs ahead of time and try to improve on collections.

The EBRI suggested that employer groups that adopt health plans with reference pricing discuss it in-depth with both their provider networks and their workers.

"They need to consider how the reference price is determined and how providers may react. Also, communication to workers in a health plan is key to an effective implementation of reference pricing," Paul Frontsin of the EBRI told Business Management Daily.

To learn more:
- read the Associated Press article
- read the EBRI study (.pdf)
- here's the Business Management Daily article