“LARGER SELF-FUNDED EMPLOYERS AND GROUP
CAPTIVES HAVING GREATER CONCENTRATIONS OF EMPLOYEE POPULATIONS
IN SPECIFIC GEOGRAPHIC LOCATIONS CAN WORK LOCALLY TO NEGOTIATE
SIGNIFICANTLY DEEPER DISCOUNT ARRANGEMENTS WITH SELECT PROVIDERS.”
66 cayman captive 2018
Reference-based pricing plans
More employers are realising that a defined price schedule is a very
efficient way to control healthcare costs. Reference-based pricing (RBP)
plans provide a well-defined fee structure in contrast to more amorphous
“usual and customary” based PPO structures.
An RBP plan schedules the maximum amount it will cover for a particular
healthcare service. The schedule can be a universal “cost plus” basis (ie,
Medicare + 50–100 percent +) for all of the plan’s covered healthcare
procedures, or take the form of a defined limit for very specific procedures.
Many RBP schedules specifically target high-margin hospital charges
such as infusion and dialysis therapies, diagnostic imaging, durable
medical supplies, and multi-night hospitalisations. The RBP approach is
frequently paired with a high deductible plan structure and designed to
encourage increased price-shopping (aka consumerism) on the part of
employees for treatment.
Alternative networks and RPB plans can be a very effective form of
cost control if they are implemented to mutual equitability for all involved:
insureds, providers, and plan sponsor. The combined advantages
associated with self-funding and implementation of a well-planned
RBP schedule can ultimately deliver decreased provider charges and
improved patient outcomes to significantly enhance a plan’s overall
financial performance. As self-funded plans have more plan design
flexibility, RBP designs have become increasingly prevalent as a costcontainment
Healthcare value is measured by two components, quality of care
and price. The two components can be mutually exclusive. There is little
correlation between quality and price with regard to medical care. Just
as provider pricing is becoming more transparent, so have the qualitative
patient outcome scores of providers.
Precise qualitative scoring can still be a difficult measurement, but
when available it can be paired with pricing data to effectively find the
best care at the best price. As mentioned earlier, there is a significant
variation in healthcare pricing, even for the most common procedures.
The expanding selection and availability of alternative provider networks,
along with emerging platforms for enhanced pricing transparency
will help self-funded employers and captives define and reduce
Phillip C. Giles is vice president–sales & marketing, accident & health at
QBE North America. He can be contacted at: firstname.lastname@example.org
development costs would be more difficult to recoup in relation to
reduced revenue expectations.
Systemic consistency is vital
There is virtually no regulation or consistency of healthcare charges in
the US. Healthcare systems have great leeway to define prices and
determine procedural charges. As mentioned earlier, procedural prices
vary considerably from one facility to the next, even within close geographic
The solution for sustainable affordability will come only from achieving
administrative efficiency and containing cost by developing a consistent
approach to pricing for all provider charges. The metric point for all charges
needs to be based on a universal standard. Medicare with a realistic
additional profit margin (eg, Medicare + 50–100 percent +) and appropriate
geographic cost-of-business adjustments would be a logical charge basis.
The margin needs to provide adequate financial incentive so that
providers will not be compelled to hold back or ration treatment or care.
The reimbursement formula should also acknowledge the qualitative
patient outcome performance of the provider. This will help contain costs
while still fostering qualitative-based, private market competition; both of
which will serve to mitigate the cost of insurance.
This approach would effectively put every segment of the healthcare
chain on an equal playing field. Providers would have the ability to
receive an appropriate and consistent profit margin while competing
via operating efficiency and qualitative effectiveness. Insurance costs, a
product reflecting the cost of healthcare, would also stabilise over time.
Alternative networks are replacing PPOs
More self-funded plans and captives are proactively negotiating more welldefined
charge limits themselves. Progressive self-insurers are replacing
traditional preferred provider organisation (PPO) networks, and their
tendency toward ambiguous discounting, with arrangements having more
defined pricing structures, such as narrow networks and exclusive provider
organisations (EPOs). These more restricted networks typically have up to
two-thirds fewer providers than traditional networks.
Larger self-funded employers and group captives having greater
concentrations of employee populations in specific geographic locations
can work locally to negotiate significantly deeper discount arrangements
with select providers in return for increased or exclusive patient steerage
from the employer. Alternative network plans are most effective in higher
density population areas where provider selection, competition and the
potential for leveraged discounting is strongest.
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