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Maximize Healthcare Savings With Value-Based Payments

Employers—is the cost to offer health benefits to your employees busting your budget? If so, there are many ways to take charge of your own fate when it comes to managing healthcare risk, controlling claim costs, and engaging individuals in the process.

Over the years, I’ve highlighted the importance of funding options other than full insurance; plan designs that drive individual engagement and accountability; a wellbeing program to keep individuals healthy and productive; and data analytics that reveal key medical and prescription drug cost drivers.

In addition, there are currently a variety of network options available in the market place - Accountable Care Organizations (ACO), “skinny” or limited networks, “value-based” networks, direct to provider networks, and Value-Based Payments (VBP). The general goal of each of these approaches is to control costs via individual steerage, heightened quality metrics, and/or price transparency. For now, let’s take a closer look at VBP.

VBP, sometimes referred to as Reference-Based Pricing (RBP) or Metrics-Based Pricing is not a new concept, but it is becoming more and more prevalent in the market place, largely due to the potential for employers to save 10%-30% on healthcare costs.

Yes, there is the potential for employers to save 10%-30% on healthcare costs.

VBP come in a variety of different shapes and sizes, and are offered by a number of different entities from the major insurance carriers to stand-alone boutiques. In general, however, VBP is a reimbursement that uses Medicare Fee Schedules and/or Cost Data to determine the prevailing price of medical services. Let’s walk through an example that compares a traditional PPO network plan and VBP.


As illustrated, in a traditional PPO plan, hospitals set their own price for a particular service as the billed amount, say $75,000. The health plan then negotiates the billed amount to an allowable charge, say $45,000 or a 40% discount. The employee pays their covered portion of the allowable charge; the health plan pays the rest.

On the other hand, the VBP price starts at a reference point set by Medicare, say $15,000. Then, the price is negotiated to roughly 150% of the Medicare charge, or $22,500. The employee still pays his or her covered portion of the charge and the health plan pays the rest, which is significantly lower than the traditional PPO network plan.

With the potential savings opportunity, though, comes a paradigm shift as VBP is different than the networks with which most individuals are familiar.

  • For physicians, a traditional network is typically utilized for in- and out-of-network services.
  • For inpatient and outpatient facilities, however, VBP is open access for individuals. Procedures other than emergency care may require pre-certification prior to the service so the price can be negotiated and established with the facility, again using Medicare prices as the reference point.

Because VBP is different than traditional PPO network plans, it requires a comprehensive employee communication plan to ensure that individuals understand the nuances of the program – how it works, what are its benefits, what support exists, etc.

In short, if you’re an employer who wants to control and stabilize health care costs, emerging data suggests that VBP as part of your multi-year strategic plan has the potential not only to save you 10%-30%, but also to produce year over year cost trends that are more closely aligned to general inflation rates. For more information, join our seminar on September 27th or contact your local OneDigital representative.



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