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Why Aren’t More Employers Implementing Reference-Based Pricing Benefit Design?

Anna D. Sinaiko, PhD, MPP; Shehnaz Alidina, SD, MPH; and Ateev Mehrotra, MD, MPH
This qualitative study finds low employer adoption of reference-based pricing (RBP) benefit design and that redesign of RBP may be necessary to overcome barriers to adoption.
Theme 4: Adoption of RBP May Hinder Retention of and Competition for Workers

The slowdown in the growth in healthcare spending over the past few years in combination with broader economic growth has resulted in private-sector employers facing increased competition for workers. Employers were hesitant to adopt RBP out of concern that it would be viewed negatively by employees. One interviewee noted: “[Many employers] say saving money is not their top priority. [The top priority] is making sure that their employees are happy, making sure they have these nice benefits, making sure the employees are taken care of if they have a problem.” Along these lines, firms know “they are competing with…companies who are offering very rich benefits, and they know if they want to get the talent, they also need to do that.”

Due to this reluctance to penalize employees for their provider choices (beyond HDHPs, which interviewees noted are pervasive), use of wellness programs, price transparency tools, disease management programs, and access to vendors that provide second opinions are preferred strategies to engage employees in their healthcare choices. These programs, as one interviewee described, rely “less on sticks and more on carrots.” Competition for workers through generous benefits was mentioned only among private-sector employers. When interviewees discussed public employers and union funds, they described growing pressure to control healthcare spending and more consideration of adopting RBP.

DISCUSSION

Despite strong evidence that RBP can decrease healthcare spending, our findings suggest that it is unlikely that there will be wide adoption of RBP in its current form in the US commercial health insurance market. Perspectives gleaned from these interviews suggest 3 strategies to facilitate wider adoption of RBP.

First, simplify. Exempting an entire category of low-priced providers from RBP, as CalPERS did for colonoscopies and ambulatory surgery centers (ASCs),11 gives patients a simple heuristic to guide them (eg, have your colonoscopy at an ASC) versus having to go provider by provider to determine whether they are below the reference price. Improved decision support is also needed. Second, establishing out-of-pocket maximums for RBP so that employees are not at risk of catastrophic costs could alleviate employee disruption and risk. Finally, “turnkey” solutions for employee communication and education, based on best practices that have demonstrated effectiveness, would address concerns about the necessary levels of communication and potential employee backlash.

Employers could also implement alternative forms of benefit design that encourage patients to switch providers but have less of a “stick.” Tiered network plans, which sort providers into strata and require patients to pay higher cost sharing if they choose a provider that is in a nonpreferred tier, are similar in conception to RBP but avoid the risk of catastrophic out-of-pocket costs. Several studies have demonstrated that tiered networks lead to savings.18,19 Another “carrot” option is to implement rewards programs in which patients receive money if they go to a lower-priced provider. Although these are becoming more popular,20 there have been no rigorous evaluations of their impact.

Limitations

This paper has important limitations. The sample was purposefully selected using a limited number of respondents who had adopted RBP or had seriously considered its adoption, and the findings may differ in other settings. However, participants’ responses, viewed collectively, enable us to report on a broad range of opinions held across employer representatives with expertise on this topic.

CONCLUSIONS

In the past year, growth in healthcare spending has begun to increase again, which will likely place increasing pressure on all employers to decrease spending. RBP holds great promise as a strategy to lower spending. Yet without redesign of RBP so as to achieve broader take-up by employers, this promise of RBP appears likely to remain unrealized.

Author Affiliations: Harvard T.H. Chan School of Public Health (ADS), Boston, MA; Harvard Medical School (SA, AM), Boston, MA; Beth Israel Deaconess Medical Center (AM), Boston, MA.

Source of Funding: Funding from the Robert Wood Johnson Foundation (grant #73721) for this research is gratefully acknowledged.

Author Disclosures: Dr Mehrotra reports that, unrelated to him, Harvard has implemented rewards for its employees, a related form of benefit design. The remaining authors report no relationship or financial interest with any entity that would pose a conflict of interest with the subject matter of this article.

Authorship Information: Concept and design (ADS, AM); acquisition of data (ADS, SA); analysis and interpretation of data (ADS, SA); drafting of the manuscript (ADS); critical revision of the manuscript for important intellectual content (SA, AM); provision of patients or study materials (ADS); and obtaining funding (ADS, AM).

Address Correspondence to: Anna D. Sinaiko, PhD, MPP, Department of Health Policy and Management, Harvard T.H. Chan School of Public Health, 677 Huntington Ave, Room 409, Boston, MA 02115. Email: asinaiko@hsph.harvard.edu.
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