How Montana cut healthcare costs with reference-based pricing

Montana's state workers' health plan is using reference-based pricing to pay hospitals for the care they provide, reports Kaiser Health News.

The approach began two years ago after state lawmakers directed Montana's Health Care and Benefits Division to control increasing costs. Montana's state workers' health plan had been starting with the hospital's list price and then negotiating discounts, but the state instead started giving hospitals a "reference price" for how much it would pay for hospital services, according to the report. The reference price is based on Medicare rates and is generally an average of 234 percent of those rates.

The change was designed to cut costs and reduce disparities in the amounts hospitals charge state employees for the same service, KHN reported. So far, Montana has seen growth in its reserve fund and is saving $15.6 million this year over the estimate of what it would have paid without the change.

But there have been concerns about Montana's experiment.

Glenn Melnick, PhD, director of the Center for Health Policy and Management at the University of Southern California in Los Angeles, told KHN: "A centralized price-setting model has danger. It can overpay or underpay."

Some hospitals also may decide not to participate in the state health plan as a result, Mr. Melnick said.  The state has not indicated that has been the case. 

In addition to state workers, Montana is in talks about expanding the program to cover city, county and university employees, the report stated.

Read KHN's full report here.



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