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Using data for the three fiscal years before and after the implementation of reference-based pricing (SFY 14 through SFY 19), Optumas calculated what the plan would have paid under traditional (without reference pricing) negotiations based on a discount off chargemaster rates and compared the estimated payments to what the Montana plan actually paid under reference pricing. Optumas, an independent consulting firm with expertise in health care reform, used publicly available data to analyze the financial impact of the plan’s transition to reference-based pricing.
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The reference-based pricing agreements lowered the range in prices paid by the health plan to 220 to 225 percent for inpatient services and 230 to 250 percent for outpatient services. Before the reference-based pricing agreements, Montana paid a range of 191 to 322 percent of Medicare rates for inpatient services and 239 to 611 percent of Medicare rates for hospital outpatient services. In moving to reference-based pricing, Montana established payment rates for inpatient and outpatient services that are a multiple of Medicare’s payment rate for the Montana acute care hospitals. However, because hospitals do not have to follow a standard formula or legal requirements for setting chargemaster prices, these rates can be set much higher than what it actually costs a hospital for providing services, even after the plan’s negotiated discount. Prior to implementing reference-based pricing, Montana’s third-party administrator negotiated hospital reimbursement rates as a discount off a hospital’s chargemaster rates, similar to traditional negotiations used by most health insurers when contracting with hospitals. The state set out to address the prices the plan was paying for hospital outpatient, inpatient, and physician services instead of reducing plan costs by increasing employees’ out-of-pocket costs or adopting coverage restrictions.