Montana signals it could move away from an innovative way of setting the prices its public employee health plan pays hospitals for services, an approach that has saved the state millions of dollars and to become a model for health plans nationwide.
The plan gained national prominence among employers and supporters of health care price reform when, in 2016, it established maximum amounts the health plan would pay for all inpatient and outpatient services. These amounts were indexed to Medicare reimbursement rates. Adopting this model, known as referral-based pricing, has saved the state tens of millions of dollars. Taxpayers contribute to the financing of the medical scheme, which insures civil servants and their families, for a total of around 28,800 people.
Montana didn’t invent referral-based pricing, but the state made waves by having a healthcare plan of this size setting prices for all services, not just certain procedures, such as joint replacements. of the knee.
Now, Montana is positioning itself to refine its model, just as more states and employers, looking to cut costs, consider adopting it. That has health economists and those trying to cut hospital prices elsewhere wondering if the state is once again forging ahead on the curve — or bracing for a setback.
“We’re looking to Montana for success,” said Gloria Sachdev, president of the Indiana Employers’ Forum, a nonprofit organization trying to improve health care pricing. “Now that he’s doing something new, I think a lot of eyes will be on Montana.”
In September, the state awarded Blue Cross and Blue Shield of Montana a contract to take over administration of the public employee health plan starting next year. The contract plans to use Medicare rates as a basis for setting overall goals for the amounts the plan will reimburse hospitals. This gives Blue Cross the ability to achieve these goals with referral-based pricing – but also by negotiating agreements with individual healthcare providers using a combination of reimbursement models.
The state said in a press release announcing the contract that its new reimbursement targets will save $28 million over the next three years. But contract details on how this will be achieved are vague.
Blue Cross, one of Montana’s largest insurers, won’t detail its plans while Allegiance Benefit Plan Management, the current administrator of the public employees health plan, is challenging the state’s contract decision. Allegiance had held the contract since the state adopted the referral pricing model.
John Doran, a Blue Cross spokesman, said state officials have asked company officials to direct any questions to the Montana Department of Administration.
Asked how the upcoming changes will affect the existing health plan model, Montana officials pointed to the state’s contract with Blue Cross. According to this document, Blue Cross can create “customized alternative payment arrangements with suppliers” with state approval.
In the state’s press release, officials said the goal was to “modernize” its six-year-old reimbursement strategy. Department of Administration Director Misty Ann Giles said in the statement that the state selected a vendor to help it “become more flexible in achieving its goals effectively.”
The United States has struggled to respond to rising health care costs. The Centers for Medicare & Medicaid Services estimated that in 2020 health care spending rose nearly 10% to $4.1 trillion, or $12,530 per person. More than 160 million people in the United States have employer-sponsored health insurance. Historically, the prices that employee health plans pay have been negotiated privately between healthcare providers and third-party administrators like Blue Cross, with negotiations often beginning at prices offered by hospitals.
This process exacerbated the lack of transparency in the cost of care and contributed to a wide variation in the prices paid by private insurance plans. In a study of medical claims data from 2018 to 2020, think tank Rand Corp. found that private insurers in some states, such as Washington, paid hospital prices that were 175% less than what Medicare would have paid for the same services at the same facilities, while in other states they paid prices that were 310% of the Medicare rate or higher.
In 2016, Montana took a bold leap. Instead of negotiating down prices quoted by hospitals, the state has set a range of what hospitals can charge for services, establishing maximum costs as a set percentage above the rates of Medicare. If hospitals refused to negotiate through this model, they risked losing access to patients insured by the state’s largest employer.
Marilyn Bartlett, who led the change to referral-based pricing when she worked for Montana, said that at that time the plan had been losing money for years and was in danger of seeing its reserves fall into the negatives. By 2017, Bartlett said, the plan’s reserves had accumulated more money than the state’s general fund, and premiums paid by state employees remained flat.
“We had flattened the price curve and, in fact, we had a negative outcome,” said Bartlett, now a senior policy fellow at the National Academy for State Health Policy, advising other states on how to reduce drug costs. Health care. “It was unheard of.”
Dr. Stephen Tahta, president of Allegiance Benefit Plan Management, said that even though Allegiance was the administrator of the health plan, it saved more than $48 million.
Hospital representatives said a growing number of employer plans are considering increasing their use of referral-based pricing.
In recent years, the California pension plan that provides insurance benefits to public sector employees has worked to expand benchmark prices for certain drugs.
And the state of Colorado has joined a buying alliance to negotiate with hospitals over prices for its medical plan for public employees this year, seeking to use Medicare rates as a baseline. Bob Smith, executive director of this alliance, the Colorado Business Group on Health, said that while major health systems have resisted this process so far, patients also have a tool to compare health care prices. healthcare to choose providers who charge reasonable prices and offer high-quality services. care.
The American Hospital Association opposes referral-based pricing, saying it can increase the amount patients have to pay for care. One way that could happen is balance billing, where a provider charges a patient the difference between the cost set by the plan and the amount charged by the provider.
Those who advocate price reform have said that initial hospital prices before negotiations can be arbitrary and that Medicare rates are a fair starting point. Medicare reimbursements may be adjusted if a provider faces significant expenses such as operating in a rural location or hiring staff to provide specialized care.
In the contract awarded in September, the state set a cap of no more than 200% of Medicare rates for the amounts the Blue Cross plan would pay providers overall in its first year. The contract says Blue Cross will aim to reimburse providers an aggregate rate of 180% of Medicare rates by the third year of the agreement.
The state left it to Blue Cross to find a way to achieve these goals.
After KHN shared reimbursement details for Blue Cross in the state contract with Chris Whaley, a health economist and policy researcher for Rand, he said it was unclear how the new approach would work. Blue Cross’s plan doesn’t say how often the company will negotiate deals with vendors outside of referral-based pricing. Whaley said that could cause Montana to lose sight of its reimbursement strategy.
“It looks like the model is already working really well,” Whaley said. “Is the referral-based pricing model something that’s going to be developed and improved? Or is it something that’s maybe going to be stripped down and not have the same impact as before?”
Allegiance alleges the contract was awarded through an illegal bidding process and could end up increasing health care costs for state employees and taxpayers.
Belinda Adams, spokeswoman for the Department of Administration, said state officials were reviewing the issues raised by Allegiance, but believe the hiring process was fair and legal.
The state has 30 days from the time Allegiance submits its protest to render a decision on the company’s claims if the two parties fail to reach an agreement that resolves the dispute. In the meantime, Adams said, Blue Cross is preparing to take over administration of the public employee health plan in January.
This article was reprinted from khn.org with permission from the Henry J. Kaiser Family Foundation. Kaiser Health News, an editorially independent news service, is a program of the Kaiser Family Foundation, a nonpartisan health policy research organization not affiliated with Kaiser Permanente.