Pricing #5: Market-based Reference Prices

As readers of our past four posts on pricing have seen, conducting successful bundled payment price negotiations is no small feat. There are many different aspects to consider—risk adjustment, contracted price, quality, and gainsharing and painsharing. However, working through all these issues with committed provider partners will ultimately yield a bundled payment rate and contract to which all parties can commit.

So, what’s next? In this post, we’ll explore how payers expand upon their bundled payment contracts beyond their first few provider partners.

Negotiating prices can be a complicated and time-consuming process, and initiating it with each provider or provider group can become tedious and inefficient for a payer. But taking the time to develop data-driven, thoughtful price points with the first few provider partners will yield dividends for payers who wish to scale their bundled payment programs. After executing bundled payment contracts with several providers, payers may wish to move toward a reference price for subsequent contracts.  Aver can help payers move in this direction.

Aver’s tools closely track the clinical, financial, and quality performance of providers. Over time, payers can gather data confirming that providers are experiencing clinical and quality success in these contracts, including streamlined care pathways and increased margins. At that point, payers can begin to transition their bundled payment pricing strategy into a market-based reference price.

Using the historical experience of participating providers, payers can offer future provider partners a more clearly defined bundled payment program as they look to scale bundles across their enterprise. After executing a few contracts, payers will likely be settling on standard bundle definitions, risk adjustment methodologies, and contracted prices that reflect both member risk and quality outcomes. By offering potential provider partners a clearly defined bundled payment package, and sharing the clinical and financial experience of currently participating providers, there may be less focus on payer-provider negotiations as providers examine their own performance to determine if the program is right for them.

As part of this process, it is common for payers to share historical data on bundle contract utilization. Offering the potential provider partner a view of their own data helps providers understand their historical performance and determine the most efficient, high quality care pathways. In this way, providers have insight into the criteria for success and can confidently make a decision regarding whether to enter into a bundled payment agreement.  

This is not to say reference prices are entirely fixed, but the range of negotiations can be narrowed. For example, depending on the geographic reach of a bundled payment program, reference prices can be adjusted for cost-of-living differences. These geographic adjustments should typically be more straightforward than starting negotiations from scratch with each provider.

Selecting appropriate geographic adjustment factors can be an internal or external exercise. By reviewing enterprise level data, payers will likely identify geographic differences in costs of care and can calculate adjustment factors using their own data.  Alternatively, some payers may look to use Medicare’s geographic adjustment factors, though they may not offer the level of granularity that some payers and providers seek. For example, in some states, Medicare uses just one geographic adjustment factor, while payers and providers may wish to divide a state into smaller regions with different adjustment factors for each. Whatever factors payers choose, offering a geographic adjustment to a market-based reference price can ensure that the pricing strategy is more responsive to providers’ unique situations.

Implementing a bundled payment program is a big step for any payer, and negotiating and executing the first few provider contracts can require a significant investment of time and resources. But those investments will yield returns when payers move to scale their bundled payment program to additional providers by offering a market-based reference price. Aver’s tools help payers develop a data-driven reference price  and support them at every step in the pricing and contracting process.

Director of Network Strategy
Aver, Inc

Want fresh insights on Value-Based Care delivered right to your Inbox? Become a member of the Aver Insights Community