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Get Costs Under Control, Or Else

Posted By Louise Probst, Wednesday, July 11, 2018
In late 2014, rising health care costs had put Montana's benefit plan reserves near negative territory. Recognizing that state employees' wages were already being held down as the result of high costs, Montana legislators told the Health Benefits Division Administrator Director, "Get these costs under control, or else."That pressure led Montana to a solution that today begs the question, "Why haven't we always done this?"
A comparison of hospital costs found wide variations for like services, with some hospitals charging commercially-insured populations as much as six times Medicare rates for outpatient services. Understanding that Medicare payments are sufficient for an efficient hospital to cover its cost of service and gain a small profit, the Montana State Employees Plan reversed the process. Instead of beginning with a hospital's list price and negotiating down, they offered a reference price for each service set at an average of 234% of Medicare.

One concern was that, while some hospitals would be forced to decrease their prices for State employees, other lower cost hospitals would have the option to increase theirs. Since traditional plan designs and PPO structures favor higher cost providers at the expense of their lower cost competitors, this could be seen as an opportunity to right a wrong. Other worries were that some hospitals would decline to participate or that price reductions would limit the availability of treatment options or trigger a reduction in health care jobs. However, in Montana, all hospitals eventually signed on to the agreement, and not one has filed for bankruptcy in the past two years.

Saving an estimated $15.6 million over expected spending just this year, Montana's success leaves other states, large employers, and business health coalitions hopeful that communities can work together to reduce health care spending without limiting needed care. As Yale economist, Zack Cooper, underscored, hospitals that claim that Medicare only covers 90% of their costs need to review their spending and investment decisions.
Warm regards,

Louise Probst
BHC Executive Director


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