Montana and North Carolina Adopt Reference Based Reimbursement to Save Costs for Their Self-funded Health Plans

For the majority of America, employers simply give up maintaining control of healthcare costs. Instead, this control is handed over to their health insurance benefit provider as well as the hospitals that treat their employees and the third party administrative agencies they pay to manage their benefits.

Most employers aren’t aware of the unique negotiating power they have and the fact that they have the right to protest rising healthcare costs. However, the climate of control over self-funded health insurance is changing across the nation, beginning with Montana and North Carolina.

The State of Montana Adopts Reference Based Reimbursement (RBR)

Marilyn Bartlett came to Montana in 2014 in an attempt to bailout the state’s health benefits plan that covered 30,000 employees and their families and was well on its way to going bankrupt. As a former controller and chief financial officer in the insurance industry, she knew better than anyone the ins and outs of the industry as well as the kickbacks, side deals, and lucrative clauses that are quietly placed into medical costs. Bartlett knew who was profiting, and it wasn’t the employers and their workers.

In a move that surprised the state, area hospitals and drug companies, Bartlett decided to take the same action that employers themselves have the ability to but just don’t know it: First, she would tell the state’s hospitals what the health benefits plan would pay, and they could take it or leave it. Second, she would demand a full accounting from the company that manages prescription drug costs, and if they refused, she’d have them replaced.

By the end of the pricing battle, all state hospitals had agreed to the reference-based reimbursement set forth by Bartlett which used the pricing established by Medicare as a reference point. Within just three short years of Bartlett coming onboard, the nearly bankrupt state health benefits plan was well in the green and on-track to save an additional $15 million without decreasing benefits or raising rates for employees and their families.

The State of North Carolina Adopts Reference Based Reimbursement

North Carolina is also on its way towards reference-based reimbursement for their state health plan, having announced to providers on October 5th, 2018 their plans to move forward with a new reimbursement rate for state employees and their families. Those providers that agree to the new pricing will be included on the state health plan moving forward, and those that disagree will be out.

With healthcare costs continuing to rise, North Carolina sought a way to keep costs under control while maintaining quality health care, transparency of providers and affordability to plan users.

“For years, the plan has paid medical claims after the fact without knowing the contracted fee. It is unacceptable, unsustainable and indefensible. We aim to change that. This new pricing model will help us ensure the delivery of quality care to our members and better control health care costs, preserve the sustainability of the Plan, and promote transparency for Plan members and state taxpayers like them.” North Carolina State Treasurer, Dale R. Fowell, CPA, said.

Beginning on January 1, 2020, the plan will move away from a commercial-based payment model to a reference-based reimbursement model based on a percentage of Medicare rates to reimburse health care providers for their services.

North Carolina predicts a savings of $300 million to the state with the move to RBR, which will make it possible for their more than 727,000 plan members to take advantage of reduced premiums for themselves and their families. Those same plan members are expected to see savings of over $60 million from the switch.

How Reference-Based Reimbursement Works

Using prices set by Medicare as a reference point, states are able to pay hospitals and care providers a set percentage above the Medicare payment amount. This establishes healthy boundaries for providers and prevents them from arbitrarily raising their prices. Medicare serves as the perfect benchmark for reference-based reimbursement because their prices are made public and are adjusted based on geography and other factors.

Reference-based pricing serves as a way to provide transparency of provider rates and maintain affordable, honest pricing for plan members – not to mention the drastic savings it provides states, employers, and government funding.

Read the full story of how Marilyn Bartlett succeeded in negotiating reference-based reimbursement for the state of Montana, and learn more about North Carolina’s decision to move to RBR for their state health plan.