Referenced-based pricing, metric-based pricing, and similar new employer-sponsored medical plan models hitting the market are creating a great deal of buzz. Much of the fanfare has centered on the potential cost savings to plan sponsors (the positive), but also the potential for significant balance billing of employees (the negative). What has not received a great deal of attention are the legal and regulatory compliance issues that must be considered when an employer is analyzing these types of designs.
A common thread for these designs is a pre-determined, maximum reimbursement level for services. Plan participants and providers may be unaware at the time of service that this maximum reimbursement is in place. This has led to several lawsuits that are currently working their way through the courts, mostly by providers against administrators and employer plans. Claims have included:
- ERISA violations - Hospitals have made claims that the plan document language did not reflect the reference-based pricing arrangement, the claims process was arbitrary, and the vendor was engaged in prohibited transactions under ERISA.
- Breach of contract - Hospitals argue that an implied contract was created between the hospital and the plan when services were provided, and the plan enjoyed the benefit of the services, and therefore would be unjustly enriched if the plan pays less than the “contracted” amount.
- Misrepresentation and fraud - Allegations that the plan misrepresented the payment amount as a percentage of the billed charges versus percentage of the reference price; plus accusations of fraud relating to statements to participants that providers will accept the reference price payment as payment in full.
Another major consideration for nongrandfathered plans seeking to introduce these cost-saving designs is whether any amounts paid by plan participants in excess of the reference price will count towards the plans out-of-pocket maximum. If so, much of the cost savings would be lost. Fortunately, as part of the FAQ guidance under the Affordable Care Act, regulators have stated that balance billed amounts do not have to count toward the out-of-pocket maximum if several conditions are satisfied:
- Type of Service - Use of reference prices must be limited to nonemergency services
- Reasonable Access - An adequate number of providers must accept the reference price
- Quality Standards – There should be assurance that providers meet reasonable quality standards.
- Exceptions - An easily accessible process for granting exceptions to the usual reference-price plan payment must be available.
- Disclosure - Information about services subject to the plan’s reference prices must be disclosed automatically (such as in summary plan descriptions).
While these reference-based pricing designs are new and intriguing for the way that they change payment for care, employers will need to get comfortable with some uncertainties, particularly relating to legal challenges. Working with qualified legal counsel to understand risks related to these compliance issues is a critical step along the way. While litigation is this area is still at an early stage, employers will want to make sure that the referenced-based pricing arrangement is properly communicated to participants, and that plan documents and SPDs clearly set out the parameters.