Moderated by

Patrick C. Haynes, Jr., Esq., LL.M.

Consulting | Brokerage | Compliance | Communication | Administration

Referenced Based Pricing and

Value Based Products: How do they differ and what is their impact?

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Patrick C. Haynes, Jr.

As Crawford Advisors’ GC and Vice President – Compliance, Mr. Haynes advises employers and plan sponsors in a variety of health and welfare benefit plan compliance matters, including, but not limited to, tax qualification and other Internal Revenue Code issues, PPACA, ERISA, COBRA and HIPAA portability and privacy issues. Mr. Haynes lectures frequently and has published many articles on health and welfare benefit plan compliance topics.

Today’s speaker

Practice Areas Employee Benefits & Exec Comp, ERISA, COBRA, HIPAA, §125, and §§ 105, 106, 129, 132

Education Temple University School of Law, LL.M.

Rutgers University School of Law, J.D.

Rutgers University School of Business, M.B.A.

Rutgers University College of Arts & Sciences, B.A.

Admitted to Practice U.S. Supreme Court

Federal and State Courts of

New Jersey

Pennsylvania

Connecticut

District of Columbia

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Michael Firey

Mike has 25 years of experience in the health care industry. Since 2005 he has been in his current role of client development for UnitedHealthcare, a division of UnitedHealth Group. In this role, Mike is responsible for aligning UnitedHealthcare’s products and services with the mid to large employer sponsored health benefits marketplace.

Mike collaborates with internal business partners to ensure that best practices are applied throughout the Client Development continuum. Mike is instrumental in providing marketplace feedback to support the evolution of UnitedHealthcare’s products and in ensuring that best in class service is delivered to our constituents.

Prior to 2005, he spent more than 16 years with another large health carrier, focusing on business development for the private, labor and government sectors with an emphasis on the financing and strategic planning of group health plans.

Today’s presenter

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Roadmap

• Healthcare Trends

• What are reference based pricing plans?

• Examples

• Barriers, Alternatives, Compliance

• ACO’s

• Poll Questions

• Takeaways

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Where’s the market going?

Healthcare Trends

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PPACA and Compliance Items That Apply to

ALL Health Plans 2014

a. Eliminate waiting periods over 90 days.^

b. Eliminate all pre-ex limitations.^

c. Report minimum essential coverage (MEC) information to employees and regulators & minimum value (MV) in 2nd year SBCs. (Delayed

until 1/31/2016 for EEs and 2//28/2016 to regulators).

d. Provide coverage for “routine costs” incurred in connection with clinical trials. (GF plans: N.A.)

e. Ensure that out-of-pocket exposure is no higher than is permitted for HDHPs. For 2014, that means OOPMaxes of $6,350/ind and $12,700/family.^ (GF plans: N.A.)

2015

a. OOPMax $6,600/single and $13,200/family.

b. HSA OOPMax are $6,450/single and $12,900/family.

2016

a. OOPMax $6,600/single and $13,200/family.

b. HSA OOPMax will be released by the IRS around 15-Oct-2015.

c. Per HHS/IRS/DOL guidance no individual can face more than the individual OOPMax even if they are in a family tier (imbedded sub-limit).

^ For the 1st plan year on/after Jan 1, 2014.

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Yes

Yes

The Employer Mandate & Employer

Penalties Q: What Are the coverage Requirements and penalties?

A: Employers subject to the employer mandate are required to offer coverage that

provides “minimum value” and is “affordable.” The chart below explains these requirements and the penalties that apply if they are not met.

Do you offer coverage?

Does the plan provide “minimum value”? (60% of total allowed costs)

Yes

Is the coverage affordable? (less than or equal to 9.5% of income)

No Penalty

No

No

No

$2,000 per FTE (minus first 30)* Applies if one full-time employee receives federal premium subsidy for Marketplace coverage.

Lesser of: $3,000 per FTE receiving that is receiving a subsidy or $2,000 per FTE (minus first 30)*

* For plan years beginning in 2015, the penalty is $2,000 for each full-time employee minus the first 80 employees. For plan years beginning in 2016 and beyond, employers can exclude 30 employees from the penalty calculation. See questions 38 & 39, IRS’ FAQs. http://www.irs.gov/uac/Newsroom/Questions-and-Answers-on-Employer-Shared-Responsibility-Provisions-Under-the-Affordable-Care-Act

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Health Care Trends

• With the increased burden of PPACA,

many employers have relied on

reducing plan benefits.

– Reduction in coinsurance

– Reduction in copays

– Higher Deductibles

• Other employers have been looking to

take control of their health plan by

offering “defined contribution plans.”

– These plans allow employers to

better budget their contributions

by giving a defined amount for

employees to shop for their

health coverage.

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Health Care Trends

• Insurers have striven to assemble

creative products and solutions to take

the cost burden off of themselves as

well as employers.

• One such example that leading

insurers have been turning to are

Minimum Essential Coverage, or

Skinny Plans.

• Crawford Webinars have spoken in

depth about these plans. You can

access the replay on-demand at

www.crawfordwebinars.com

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An Introduction

Reference Based Pricing

& Value Based Products

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What is Reference Pricing?

• Establishes a standard price (or ceiling,) for a drug, procedure, service or bundle of services.

• Requires members to pay allowed amount beyond this amount, even for in-network providers.

• Reference pricing has been shown to lower the cost and increase value in prescription plans, and is now expanding to selected medical and surgical services.

• A few carriers including UHC, Aetna, WellPoint and CIGNA have begun to roll out products, each with different covered services and pricing.

• A Tower Watson/National Business Group survey estimated that 5% of employers currently have reference based plans in place in 2013, while 15% of employers were expecting to employ these plans in 2014.

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What is Value Based Pricing?

• Value based pricing is the alignment of incentives between purchasers and manufacturers mostly for pharmaceuticals.

• Payers and Pharma companies agree to link payment for a medicine to value achieved, rather than volume.

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What problems does Reference Based Pricing

Try and Solve?

• Reference Based Pricing aims to offer reasonable alternatives to high-cost providers without compromising quality. Patients have the carrot of lower, and in some instances, no member cost share if they go to the providers who charge at or below the reference price. This may make patients more sensitive to the price of service and more likely to choose cost-effective hospitals or physicians (CPR Action Brief 09/12).

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Your Current RBP Benefit

• Pharmacy benefits have long been RBP. A reference price is set for a class of substitutable medications and members pay the incremental costs to obtain medications priced higher. The RBP is the formulary drugs on your PDL and your tier 3 represents the amount over the reference price.

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Examples

Reference Based Pricing

& Value Based Products

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What’s the opportunity?- Core Network

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What’s the opportunity?- Castlight

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What’s the opportunity?- Bluebook

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What’s the opportunity?

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Cataract Removal & Insertion of Lens

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Cataract Removal & Insertion of Lens

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Cataract Removal & Insertion of Lens

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The Inpatient Cost Problem

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What strategic considerations should be

addressed when considering RBP?

• Services have a high likelihood of delivering value

• Substantial variation in price

• Services are shopable & distributed

• Price must be credible and achievable

• Tools to estimate costs for reference based services are accurate and comprehensive

• Strong employee communications

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Examples of RBP in Action

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Colonoscopy Cost

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Colonoscopy Cost

• Colonoscopy costs anywhere from $900 to $7,200 – an eightfold variance.

• Safeway allows up to $1,500 for routine colonoscopies. Member responsible for price difference.

• Prior to implementation, 30% of members (16 out of 53,) incurred charges over $1,500.

• After implementation, only 11% of members incurred charges over $1,500.

• And, the number of members obtaining a colonoscopy increased by 40% after implementation.

• Cost savings achieved: 35%

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Barriers, Alternatives and Compliance

Reference Based Pricing

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Barriers to RBP

• Need good transparency tools

• Operational: there is non-uniformity in why, when, and how certain services are obtained and claims submitted.

• Need to make sure the cost savings from the RBP service is not offset by higher volume or cost of related, but not included procedures.

• Regulatory: how will the ACA treat preventive services and will the amount over the RBP be included in the OOP maximum for in-network coverage.

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Alternatives to RBP

• High Performance Networks - they are inherently the most efficient providers. Employers may add incentives to use those providers, or offer an option composed of only those providers (Narrow Network.)

• Place of Service Cost Sharing:

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Compliance

• Questions have been posed about whether the health costs over the reference price would be allowed to exceed the OOPM which is set at $6,600 and $13,200 for EE/F respectively.

• The Departments had the following to say:

"Until guidance is issued and effective, with respect to a large group market plan or self-insured group health plan that utilizes a reference-based pricing program, the Departments will not consider a plan or issuer as failing to comply with the out-of-pocket maximum requirements of PHS Act section 2707(b) because it treats providers that accept the reference amount as the only in-network providers, provided the plan uses a reasonable method to ensure that it provides adequate access to quality providers. For non-grandfathered health plans in the individual and small group markets that must provide coverage of the essential health benefit package under section 1302(a) of the Affordable Care Act, additional requirements apply."

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Accountable Care Organizations… or ACO’s

• ACO plans are similar to reference based pricing plans insofar as they promote increased consumer awareness.

• The Two Defining features of ACO Plans are:

• Narrow “Hospital-centric” Networks

• Cost and Quality Incentives

• They have started to be incorporated by Hospital employees, and while not many Large Employers have transitioned to these plans yet, they are certainly something to keep an eye out for these networks in the future.

• These networks in conjunction with reference based pricing plans can save both in fixed costs as well as back end cost.

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How much did you learn?

Poll Questions

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Question 1

Which of the following is true about reference based pricing plans?

A) It will most likely increase procedure volume

B) It will most likely increase procedure cost

C) Both A and B

D) Neither A or B

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Question 2

The DOL and HHS have determined that any cost in excess of the reference based price may not go over the PPACA OOPM.

A) True

B) False

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Question 3

In the Safeway Case Study, the increased volume of colonoscopies outweighed the cost savings from the implementation of the reference based price.

A) True

B) False

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Takeaways

• It is important to properly communicate a reference based pricing plan, so that members are fully aware of allotted amount of benefits for procedures.

• It is a growing design, with almost a 300% increase in employers planning to offer this pricing model in 2014 vs. 2013.

• The government has outlined that these plans are OK for now.

• Amounts over the reference based price DO accumulate over the OOPM.

• It has shown increased volume AND savings, which proves that employees are becoming more educated healthcare consumers.

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Crawford Advisors, LLC

200 International Circle, Suite 4500, Hunt Valley, MD 21031

Devon Square Two, 744 West Lancaster Avenue, Suite 215

Wayne, PA 19087

800.451.8519 • www.CrawfordAdvisors.com

Via E-mail to: webinars@crawfordwebinars.com

To Download These Slides: http://www.crawfordwebinars.com

Questions & Requests: rcrawford@crawfordadvisors.com

Questions