The No Surprises Act (NSA) covers all participants in employer-sponsored health plans. It’s goal is to protect participants from surprise medical bills for charges in excess of negotiated rates with network providers. The NSA applies to emergency services as well as care received from out-of-network providers at an in-network facility.
Reference Based Pricing (RBP) designs have been part of self-insured plans for decades. However, only a minority of plans incorporate RBP. RBP is typically used to reduce benefit payments as a means of avoiding excessive out-of-network provider charges. Coupled with participant protection services, it can have a substantially favorable impact on spending for medical services – by the plan and its participants.
Implementing RBP requires the traditional Preferred Provider Organization (PPO) to establish a benchmark fee schedule, often called the “maximum allowable charge” where there is no contractual relationship with a provider. Most RBP programs incorporate schedules that couple Medicare reimbursement rates and other provider cost data to provide an objective cost baseline.
The NSA and RBP intersect only with respect to non-network providers. The NSA includes open negotiation and independent dispute resolution (IDR) procedures that may trigger a new risk for health plans that apply RBP to non-network providers or plans that directly contract with providers and facilities. There is potential for significant increase in the cost to the plan, and indirectly to participants where there is cost sharing of funding (employee contributions).
Where NSA applies:
Out-of-network expenses are treated as in-network for benefit plan purposes, avoiding the higher point of purchase cost sharing used in many PPO designs (higher deductibles, coinsurance, out-of-pocket expense maximums, and avoiding designs that preclude cross-applying non-network expenses). Where the median in-network, negotiated fees exceed the RBP “maximum allowable charge” for the same services in the same geographic location, the plan will likely end up providing higher benefits.
It’s clear, the benefit plan’s costs will increase – the incidence of expense (who pays initially) will be on the plan and the plan sponsor. However, the impact (who ultimately pays) may be shifted to participants, over time, in the form of higher employee contributions.
Self-funded plans should be aware of this risk.
The most effective way to address the NSA legislation, particularly elements of the IDR process, is to adopt a “pure” RBP plan. This structure doesn’t depend on a network’s ability to negotiate a price for a specific provider in a specific location for specific services. There are no in-or-out-of-network claims, nor is there any determination of a median in-network rate. Based on the guidance received to date, pure RBP appears to avoid the NSA IDR process – because there are no contracted rates.
A pure RBP avoids the cost of direct contracting and network access fees. Further, because in-network charges also tend to vary substantially from provider to provider, pure RBP ensures the reference price applies in every situation.
As a result, deploying a “pure” RBP plan, with appropriate participant protections, has lowered both the employee point of purchase cost sharing (deductibles, copayment, coinsurance) and the cost of benefits – which, in turn, over time, lowers the cost of coverage by lowering both employee and employer contributions.
Savings may be found when RBP is limited to out-of-network providers, but a “pure” RBP design will ensure lower, stable pricing once it is applied to all providers.
However, just because a plan and its participants deployed a “pure” RBP plan design and found savings doesn’t mean they automatically get to keep those savings. A “pure” RBP process faces the same challenges as the more traditional variant, including balance billing. So, additional processes are necessary to keep the savings – to realize the reduction in spend by both the employer and the employee. Bottom line, it is not what you get from RBP that counts, it’s the savings you get to keep.