Montana’s experiment in reference-based pricing has saved $13.6M so far

The North Carolina State Health Plan won’t be the first to tie provider payments to a percentage of Medicare rates. Montana’s state employee health plan shifted to a similar reference-based reimbursement model in 2016 to gain better control over its healthcare spending. 

So far, the strategy has been successful: In the past three years, the State of Montana Benefit Plan saved $13.6 million under the reimbursement model and none of its hospitals affected by the change have struggled to keep their doors open, said Amy Jenks, bureau chief of health plan operations in Montana’s Health Care and Benefits Division.

When it decided to try out the reference-based payment model, the State of Montana Benefit Plan was facing issues similar to those in North Carolina. Not only was the cost of providing health benefits to workers increasing, but the Health Care and Benefits Division was concerned with the “vast differences” in what hospitals charged for the same medical services, Jenks said. 

Linking reimbursement to a set percentage of Medicare rates reduced the overall disparity between the highest- and lowest-cost Montana hospitals by about 28 percentage points over three years, she said. 

But North Carolina hospitals insist their circumstances are different than those in Montana. They argue Montana expanded Medicaid in 2016, helping to reduce the uninsured rate to 8.5% in 2017, according to the U.S. Census Bureau’s latest data, and reducing uncompensated-care costs for its hospitals. North Carolina has not expanded Medicaid and had an uninsured rate of 10.7% in 2017. 

Moreover, Vidant Health CEO Michael Waldrum said a bigger portion of Montana’s hospitals are critical-access compared with North Carolina, so they receive extra funding from the federal government. Finally, North Carolina hospital CEOs say the State of Montana Benefit Plan set its reimbursement rate at an average 230% of Medicare, compared with the North Carolina treasurer’s proposal of 177% of Medicare.

But Montana’s Jenks said that while she’s aware that figure has been quoted in the past, her division has no documentation that can validate it. Negotiations were made on a hospital-by-hospital basis, so the reimbursement rate varies.

Utah and New Jersey are experimenting with cost-cutting strategies beyond reference pricing. Utah’s Public Employees Health Plan, which covers about 170,000 of the state’s employees, last year began coordinating and covering the cost of employees to travel to a designated pharmacy in Tijuana, Mexico, to fill a 90-day supply of certain specialty medications.

Through the voluntary pharmacy tourism program, Utah’s plan offers members cash incentives to travel to fill prescriptions up to four times per year. 

“The prescription drugs received in Mexico are the same quality and from the same manufacturer as those sold in the U.S.,” Travis Tolley, the health plan’s clinical services director, said in a statement in October. “The difference is the price you pay. For example, a 90-day supply for the average cost of an eligible drug in the U.S. is over $4,500 per month and is 40% to 60% less in Mexico.”

Meanwhile, New Jersey Gov. Phil Murphy struck a deal with several public-sector unions to move retired public employees to Medicare Advantage plans and form a new health plan that will steer active employees toward certain lower-cost healthcare providers. The Murphy administration expects the move to save nearly $500 million in two years.

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