Traditionally, managed care networks negotiate agreements with hospital systems. The negotiated fees are often expressed as a discount off billed charges, rather like wholesale vs. retail pricing.
What most people don't know is that although these discounts can be as high as 50-60 percent, the actual prices are still 2-10 times what Medicare pays for the same service -- and Medicare may well be the hospital's largest customer.
That's where Referenced Based Pricing comes in, according to Pariseau. Here's how it works. A self-funded employer replaces its managed care network, hires an RBP claim administrator and amends its plan document to limit spending on hospital charges to a reasonable amount, such as Medicare plus 20 percent. The RBP administrator has no "in network" or "out of network" hospitals, but it does include a traditional network for physicians and prescriptions, as RBP doesn't work as well in those areas.
After a hospitalization, the employee gets a hospital bill, for example $100,000; and the RBP administrator pays the hospital the Medicare rate plus 20 percent, say $25,000. The hospital then "balance bills" the employee for the $75,000 difference. Now it gets interesting. The key to the success of the RBP strategy is that the administrator then steps in on behalf of the employee.
The administrator's legal team explains to the hospital that the plan is limited to paying Medicare plus 20 percent, and since the hospital accepts Medicare charges every day, adding another 20 percent should be more than reasonable.
The conversation might go something like this: "But the patient signed pre-admission paperwork taking responsibility for the hospital charges," says the hospital. The RBP administrator replies, "Were the actual charges listed on that paper work? How can patients consent to prices they will never see until after discharge?"
In the end, knowing that the courts recognize a reasonable payment from an unreasonable charge, the hospital settles.
"RBP is not for the faint of heart," says Pariseau. "These settlements can take weeks and hospitals can play hardball with collection agencies, but good RBP administrators know how to protect employees. Eventually, though, the hospital accepts payment. Is it worth it? With the average premium for a family of four approaching 50 percent of median U.S. income, and no end in sight, it just may be."
About Lykes Insurance
Lykes Insurance was founded in 1925 by Lykes Bros. Inc., a 101 year-old privately held Florida-based company. As a premier commercial insurance firm with offices in Tampa, Fort Myers, Winter Park and Sarasota, Lykes Insurance focuses on building long lasting partnerships with companies and individuals, providing protection for businesses, managing risk and designing innovative employee benefit solutions. For more information, please visit www.lykesinsurance.com.
RFB Communications Group
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SOURCE Lykes Insurance