Reference Pricing: Obamacare Consumer Protection Weakened

[Jesus Malverde]

Imagine you’re in your fifties and, after years of living in pain, you decide finally to get that knee replacement. Your physician recommends a local hospital, where he happens to have privileges. You are a savvy consumer, so first you make sure that that the hospital is part of your insurance network. It is. You get the procedure and then, a few weeks later, you get the bill—for $15,000. That can’t be right, you think. Your plan, which you get from your employer, is supposed to limit your out-of-pocket spending to only a few thousand dollars a year. The Affordable Care Act makes a similar guarantee.

You’re right about what the plan says it allows and what Obamacare is supposed to require. But you’re on the hook for that money anyway. You can thank a new way paying for medical services—and a tentative decision by the Obama Admninistration, little noticed until the AP’s Roberto Alonso-Zaldivar wrote about it last week, allowing employers and their insurers to use the scheme without much oversight.

The system is called “reference pricing” and my health economist friends love it. They think it will mean less spending on health care—first, by encouraging people to shop for better deals and, eventually, by encouraging hospitals to lower their prices. But the consumer advocates and insurance experts I know are queasy over the rules governing its use. Without more safeguards, they worry, beneficiaries won’t understand the new system and will end up running up many thousands of dollars in bills—thereby weakening one of Obamacare’s most important new protections.

Both groups make a pretty good case.

Read More: http://www.newrepublic.com/article/117812/reference-pricing-obamacare-consumer-protection-weakened

[ProSense]

1. Nothing

Here’s how reference pricing works. An insurance company decides to set a fixed, fee for a common procedure. Hospitals and surgery centers are free to charge more and beneficiaries are free to seek care at those providers. But in such cases, the beneficiaries would have to pay the difference out of their own pockets. If you owed $15,000 for that knee replacement, for example, that might mean your insurer had set the price at $30,000—and you went to a hospital that charged $45,000. The hope is that very few beneficiaries would do that. Armed with information about prices and reimbursement, most would seek out hospitals and surgery centers that charge less. Hospitals and surgery centers charging more would lose business and, in response, they’d lower their prices. In short time, a truly competitive market for individual medical services would evolve.

It’s not as pie-in-the-sky as it might sound. CalPERS, the massive private insurance plan for public employees in the state of California, introduced reference pricing for knee and hip replacements a few years ago. According to an analysis by James Robinson and Timothy Brown, the results were pretty dramatic. The hospitals that charged lower prices got a ton of more business, apparently at the expense of the hospitals charging a lot more. Providers noticed and responded exactly as economists hoped they would. The pricier hospitals started charging less, reducing their fees by more than one-third. (See the graph below.) CalPERS ended up saving $2.8 million, while individual members getting the surgeries realized a net reduction in out-of-pocket expenses of about $300,000. On avearge, that works out to about $700 per patient—the result, primarily, of people seeking out cheaper facilities. That's real money.

...has been "weakened."

This is cost control. Those using CalPERS as an example should report the full model.

From a 2013 NYT article on the CalPERS model:

<...>

In California, a large plan for public employees has been especially aggressive in using the tactic, and the results are being watched closely by employers and hospital systems elsewhere.

Under the program, some employees are being given the choice of going to one of 54 hospitals, including well-known medical centers like Cedars-Sinai and Stanford University Hospital, that have agreed to charge no more than $30,000 for a hip or knee replacement. Prices for the operation normally vary widely in the state, with hospitals billing from $15,000 to $110,000 for the same operation, a spread that is typical for much of the nation.

“It’s a symptom of the completely irrational pricing structure hospitals have,” said Ann Boynton, a benefits executive for the California Public Employees’ Retirement System, known as Calpers, which worked with the insurer Anthem Blue Cross, a unit of WellPoint, to introduce the program.

Overall costs for operations under the program fell 19 percent in 2011, the program’s first year, with the average amount it paid hospitals for a joint replacement falling to $28,695, from $35,408, according to an analysis by WellPoint’s researchers that was released Sunday at a health policy conference.

- more -

http://www.nytimes.com/2013/06/24/health/employers-test-plan-to-cap-medical-spending.html

The misleading information about the "reference pricing" rule.
http://www.democraticunderground.com/10024972599

[Cali_Democrat]

2. As Obamacare proves to be successful day after day....

the Republicans and their enablers will do everything they can to tear it down in an attempt to gain an advantage in the 2014 and 2016 elections. They hate the fact that it's been successful and millions of previously uninsured are now insured.

Obamacare saved consumers billions:

http://www.democraticunderground.com/10024968196

[Jesus Malverde]

5. Some experts are concerned.

"The problem ... from the patient's perspective is that at the end of the day, that is who gets left holding the bag," said Karen Pollitz of the nonpartisan Kaiser Family Foundation.

Previously a top consumer protection regulator in the Obama administration, Pollitz said the administration ruling amounts to a substantial change for consumers.

http://www.startribune.com/lifestyle/health/259489931.html

Is Politz a republican?

Such a pricing structure may be a subterfuge for the imposition of otherwise prohibited limitations on coverage, without ensuring access to quality care and an adequate network of providers.” That document also warned that employers and insurers using reference pricing must use “a reasonable method to ensure that it provides adequate access to quality providers.”

The administrations own words.

[Jesus Malverde]

4. Some experts are concerned.

"The problem ... from the patient's perspective is that at the end of the day, that is who gets left holding the bag," said Karen Pollitz of the nonpartisan Kaiser Family Foundation.

Previously a top consumer protection regulator in the Obama administration, Pollitz said the administration ruling amounts to a substantial change for consumers.

http://www.startribune.com/lifestyle/health/259489931.html

[ProSense]

8. "Market based solutions work best...

“Market based solutions work best when there is symmetric information between consumers and providers,” Karen Pollitz, a senior fellow at the Kaiser Family Foundation, told me “But health insurance literacy is limited for many, many consumers. Studies show people struggle with concepts like ‘deductibles’ and ‘coinsurance’ and how they apply. The financial consequences to consumers are already high, and could become more burdensome as more intricate rules are introduced.”

She also said that.

The problem is that people aren't being clear about what's changing and the overall impact. This is clarification of a rule applied to a an existing cost-control method.

From the OP article.

Remember, Obamacare places a limit on out-of-pocket spending. This year, it’s $6,350 for an individual policy. For a family policy, it’s $12,700. If those limits applied even to people seeking care at more expensive providers, that could limit the financial incentive to shop around. Employers and insuers sought clarification—and, in early May, they got it. The Obama Administration effectively said charges in excess of reference prices would not count towards out-of-pocket limits. (The clarification does not affect plans sold through the new Obamacare marketplaces. Those plans are subject to more rigorous regulation.) If you decide to get care at a provider that charges above the reference price, you're going to owe the difference—and Obamacare's limits won't apply.

What's the danger here? For one thing, insurers might apply reference pricing to a much wider range of services than CalPERS did—and, in some cases, set payment levels so low that access to providers is difficult. Even if insurers don’t take these steps, confused beneficiaries could get tests or procedures at more expensive facilities that cost them many thousands of dollars, well beyond what they are supposed to face under the Affordable Care Act’s guidelines.

It’s hard to know how frequently this happened during the CalPERS experiment, if it happened at all. But the fact that a sizable number of beneficiaries continued to get procedures at higher cost facilities, incurring extra out-of-pocket costs for no apparent reason, raises the possibility that not everybody quite understood the choices they faced. Keep in mind that many people will get procedures wherever their physicians tell them—without thinking to shop around.

In some respects, reference pricing is of a piece with another cost control technique that’s become more popular in the last few years—limiting beneficiaries to “narrow networks” of doctors, clinics, and hospitals willing to accept lower price. The difference with reference pricing is that it provides a second, added layer of restrictions and incentives. It’s also more novel, because limited networks of one sort or another have been around since the 1980s. The piling of one restriction upon another makes it that much more dangerous, particularly since given that Obamacare's out-of-pocket limits were already pretty lax and that many people still don’t understand the basics of insurance.

Like I said, the thing that will be impacted is the structure of networks. The alarm raised by the administration is about access and quality in a more narrow network.

Some are concerned about consumer awareness. The thing is that if CalPERS is a model, the group defined the network.

[Jesus Malverde]

10. It just applies to every employer based plan..

The interesting part abut this is an in network referral could end up costing you thousands. Thousands that are not applied to the out of pocket maximum. Essentially this gives the issuance company the ability to include hospitals and physicians in their plan, but not actually negotiate rates with them and puts the onus on the consumer to get prices from hospitals, price lists they aren't required to provide the consumer.

[randome]

3. Both 'groups' often start with a conclusion then work backward.

For those of us who don't care to become policy wonks, the next best thing is to look at the overall picture.

ACA is designed to make life better for most people. With that fact in mind, the weight of the evidence, to me, falls on the side of those who say reference pricing is not an evil thing.

'Those who say' include CALPERS and other organizations who think it's a good idea.

One doesn't need to understand every possible detail or contingency to understand that the overall picture promotes this as a good idea, given all the other inadequacies of health care.
[hr][font color="blue"][center]Stop looking for heroes. BE one.[/center][/font][hr]

[Jesus Malverde]

7. Since the rule change applies to all policies, even employer provided, I think your wrong.

"don't care to become policy wonks,"

[Jesus Malverde]

6. subterfuge

Such a pricing structure may be a subterfuge for the imposition of otherwise prohibited limitations on coverage, without ensuring access to quality care and an adequate network of providers.” That document also warned that employers and insurers using reference pricing must use “a reasonable method to ensure that it provides adequate access to quality providers.”

http://www.dol.gov/ebsa/faqs/faq-aca19.html

[randome]

9. "May be". "Some experts say".

That's not much to go on.
[hr][font color="blue"][center]Stop looking for heroes. BE one.[/center][/font][hr]

[1StrongBlackMan]

11. It's all that is necessary for ...

the speculatively perpetually outraged amongst us.