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Where Art Thou RBR Program Transparency?

As with any new idea or even a business pursuing an idea, due diligence and caution is an important approach. Such is absolutely the case with PPOs and alternatives to PPOs like direct contracting and Reference-Based Reimbursement (RBR). Over the last several months I have been asked by TPAs as well as self-funded Plan Sponsors to audit Plans where such arrangements are in place.

I think the interest in auditing goes past the analysis of employee disruption measured by appeals, complaints and balance billing situations. It seems there is growing concern over the administrative fees charged to administer an RBR program and the actual net savings gained over traditional delivery approaches like PPOs.

While there may be variations or “mixed models” in the administrative fees charged for RBR, there are two models most commonly used. These include a percentage of billed charges and a PEPM fee.

Those early in the market have used a percentage of billed charges on any claims where they apply the RBR approach. I have seen a range of 8% to 12.5% of billed charges, in some cases “capped” at a maximum fee per claim or an aggregate annual “cap”.. This is very different from traditional pricing models of PPOs, where a per member per month non-contingent fee unrelated to savings is charged. The reason is obvious and involves defensibility. It would be difficult to defend an allowed amount where the greater the savings the greater the fee earned by the party determining the allowed amount. The other charge method is a PEPM fee (similar to what is paid to access PPOs), and I have seen numbers all over the board.

Auditing the Value of RBR Programs Where % of Billed Charges Apply

One of the reasons for the increasing interest in auditing RBR programs is the “conversion” of the percentage of billed facility charges into a PEPM fee. Say for example that a self-funded group has an average per employee per year claims cost of $10,000. Remember, that is based off actual payments, which have been discounted by the RBR program and employee cost sharing. When the charges are converted to a PEPM equivalent, the values are significant:

These fees might be shocking at first, but consider that in most cases RBR extends the average PPO facility savings from around 50% to the 72% used in the example. That 22% represents additional savings of $527 PEPM. The ROI is more than 4:1 in both cases. That would seem to be very prudent purchasing.

It is also clear that “doing RBR right” requires additional expense. The RBR vendor should provide comprehensive participant communications explaining the program; assistance to covered participants in identifying providers that are accepting of “reasonable” reimbursement; and a full range of support for participants who are subject to provider collection efforts. Some programs also indemnify the Plan and Stop Loss coverage for additional liability.

The necessity of audit has gained traction because there is an increasing lack of transparency among those providing RBR services, and advertised pricing benchmarks versus the actual benchmark applied. Take the example noted above, and replace the 72% discount with 60%. When the additional PEPM savings are calculated ($143.75) they generate an ROI of 1.5:1 at the 8% fee and a loss with a 12.5% fee.

If an RBR provider’s marketing efforts signal pricing based on a starting point versus an actual post-negotiation result, then the Plan Sponsor will likely be very disappointed.

You might ask why there might be a difference. Some methodologies are more aggressive than others, and quite frankly don’t utilize enough forethought and information. Said another way, they lack credibility with the providers and open the patient up to “being in the middle” via a collection effort. In an earlier Blog I showed the following expected appeal and balance billing rates if only a multiple of Medicare is used:

What is the easiest way to limit “noise”? Increase the allowable amount via negotiation or concession. If I start out with a lower % of Medicare I will likely have more noise, but can reduce that by ultimately “settling” on the higher end. Audit is the process whereby pricing, real savings and ROI for a credible sample of claims or all claims are verified. At a minimum, an audit should include a large random sample (10-20%) plus any claim adjusted to increase the provider’s allowed amount.

RBR Programs Priced on PEPM Basis

I certainly don’t want to let “low cost” PEPM pricing for RBR programs “off the hook” because I truly believe that “you get what you pay for”. Most, if not all, of the programs where a low cost PEPM option is offered are very light on participant education and communication, depend on the TPA’s Customer Service as the front-line of participant advocacy, and depend more on simple negotiation versus determination of a “reasonable“ allowed amount. It is imperative for the success of a true RBR program that your RBR vendor hold themselves accountable for delivering a very high percentage of claims within an acceptable and pre-determined payment range.

One contract I just reviewed for a program priced on a PEPM basis spoke at length about handling provider appeals but included nothing about support to the participant. Why would that be? Very simple, interaction with the provider allows for quick settlement of disputes, and “quick” in this service model means lower cost and no risk to the RBR vendor. It also generally means much lower savings for the employer. Anyone can negotiate a provider claim if there are no boundaries for settlement!

Just as it is important to audit RBR vendors using a % of billed charge methodology, it is essential to audit a similar 10-20% of all claims (plus any claims with adjustments leading to a higher allowed amount) on a PEPM model. A proper audit will capture the billed charge amount and the “finish line”, which is the final allowed amount. Historical ranges of savings for a legacy PPO program will range from 10% to about 50% off of billed charges, and the Plan Sponsor has typically paid anywhere from $5 PEPM up to $20 PEPM for the service. My experience has shown a direct correlation between a lower RBR fee and lower savings with RBR programs. If this is what was expected by the Plan Sponsor the audit will be validation. If not, shining a light should lead to refocused expectations.

Contracting and Diligence

Implementation of a strong RBR approach to health benefit plans begins with contracting and includes prudent ongoing diligence via audit. From a contracting perspective, make sure that the following financial provisions, services and outcomes are clearly delineated:

  • Full transparency of program fees and who is being paid;

  • Internal caps that do not allow the RBR vendor to make an unfair amount of their fee off of one claim or an ongoing claim situation like dialysis treatment;

  • Vendor guarantees of savings achievement on almost all claims (it’s not possible on all claims);

  • Some direct contracted “safe harbors” for ease of access to members, with clarity in the fees associated with managing those contracts and re-pricing of related claims (a much lesser amount should be charged for this service);

  • A comprehensive audit provision, allowing an independent agent of the Plan Sponsor to validate savings and the final relationship of allowed amount to the benchmark stated during the sales and contracting processes;

  • Clearly defined methodology for calculating savings outcomes for the Plan, including “safe harbor” savings, savings prior to adjustments and final savings;

  • Active educational and member advocacy programs

  • High quality legal service backing to protect the plans and members interest

As noted earlier, it is prudent to audit RBR programs during their first year of the contract as well as on an ongoing basis, audit cost will depend on the size of the sample, but should not exceed $8-12,000. Given the dollars at stake, a very worthwhile investment.

Final Thoughts

Remember, in most things in life you get what you pay for, except with PPOs! PPO allowed amounts are yielding payments to hospitals of 200% up to 500% of Medicare. PPO contracts are not tied to your client’s financial outcomes whatsoever, thus their negotiations with providers are purely for their own benefit. RBR is a potentially brilliant way for an employer to reduce healthcare expenses while still providing a high-quality benefit package to employees and their families. With that being said, it is essential to know what you or your client are paying for.

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