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Are employer health plans paying appropriate prices?

The Consolidated Appropriations Act of 2021 has brought about a significant change in the U.S. healthcare industry. With the establishment of the Transparency in Coverage and No Surprises Act requirements, employers now have access to all negotiated prices from every healthcare payer to every medical provider for every service in the U.S. This data provides unprecedented access to proprietary price information that can transform how payers and providers negotiate, and it can result in the elimination of unwarranted price variability.

However, accessing this data requires transparent data sourcing, selection, cleaning, and quality control. The value of this data is contingent upon making it interpretable and actionable, with considerable experience in working with large healthcare data. Additionally, under the CAA, employers have increasing fiduciary responsibility to their employees to ensure their healthcare prices are fair and reasonable.

Benchmark prices are now available in user-friendly tools for public use, starting on January 31, 2023, from all official U.S. Government mandated TiC data. These tools provide price transparency and use a transparent process, unlike past healthcare pricing services that may have been based on guesstimates or confidential sources. These tools can be used for negotiating a fair price, covering all reimbursement codes, easily searchable based on tens of billions of U.S. negotiated prices, after thorough quality control checking, using over 50,000 health plan non-duplicate files.  

In a recent study, one tool, the Official Healthcare Pricing Guide, was applied for a test case client, a typical mid-sized self-funded employer, and it was shown to result in a return on investment of one thousand to one. By spending $1,000 on HPG, the client saved $1 million per year in healthcare costs. The secret was to target services where they were substantially overpaying in contract negotiated rates relative to TiC benchmark rates. These services represented about 20% of total costs, where the client was overpaying by an average of 50% or more. After renegotiations, overpayments were cut by half on average.

Citing the TiC “Fair Price” was key in the renegotiations. These negotiations may be by benefits consultants or TPAs on behalf of the employer, and it was important not to renegotiate services where they were currently paying at or below TiC benchmark. For this typical employer with about 2,000 employees, the cost to access the data was $1,000, and the annual savings was $1 million. For other employers currently overpaying on over 20% of services, savings may be much higher. For all employers, they would have fulfilled their fiduciary responsibility under CAA to ensure they are not paying excessive rates. 

What does this mean for employers? The CAA transparency data release is one of the major breakthroughs of our time with respect to reducing U.S. healthcare costs. It has resulted in the  development of a new standard in pricing. This new standard is available without having to resort to government price controls, as some have suggested, and the new pricing is not based on Medicare or the related Reference Based Pricing, which have their perceived  disadvantages. This is a “Fair and Reasonable Price,” based on actual prices. According to the Boston Consulting Group, the legal definition of a fair price is, “a price others pay for a good or service.” Having this data allows “Evidence-Based” provider negotiations. 

At the beginning of 2023, we now have a breakthrough opportunity to fix U.S. healthcare, thanks to the passage of the Consolidated Appropriations Act.