Photo via Adobe StockFaced with high and rising health care costs, some Vermont policymakers are eyeing a new strategy to address the problem. Reference-based pricing, a system in which officials limit how much hospitals can bill private insurance plans for care, has drawn increasing attention in Vermont health policy circles. By implementing reference-based pricing just for state and school employee health insurance plans, Vermont could save tens of millions of dollars a year, according to a new report from the Green Mountain Care Board.If enacted, the pricing reform “could mitigate the need for ongoing large tax increases and protect the affordability of healthcare for Vermont teachers and State employees,” the report reads. The study, ordered by the Legislature earlier this year, adds to a growing chorus of voices calling for exploration of the pricing framework in Vermont.In September, the consulting firm Oliver Wyman recommended far-reaching changes to Vermont’s health care system, including implementing reference-based pricing. Doug Hoffer, the state auditor, has also been a proponent of the concept, saying that it could save Vermonters millions, and the state’s health care advocate has also called for capping the cost of hospital procedures. Unions representing state employees and teachers also hailed the report this week, saying it could take pressure off Vermonters’ fast-rising tax bills.“Adopting reference-based pricing for state employees and educators makes sense and is a first step in fundamentally reforming our healthcare system,” Don Tinney, the president of the Vermont-National Education Association, the teachers union, said in a Tuesday press release.“All too often, state employee contract negotiations get bogged down by fights over how to pay for rising health care costs,” Aimee Bertrand, the union’s president, said in the release. “Reference-based pricing would help ease these discussions and remove a huge roadblock to productive contract negotiations.”Vermont Auditor of Accounts Doug Hoffer speaks at a press conference hosted by Democratic gubernatorial candidate Lt. Gov. David Zuckerman in South Burlington on October 20, 2020. File photo by Glenn Russell/VTDiggerHow does reference-based pricing work?People with health insurance generally receive coverage from either Medicare, a federal program that insures older people and those with disabilities; Medicaid, a joint federal and state program that offers health insurance to low-income people; or private insurance companies, such as Blue Cross Blue Shield, MVP and Cigna. According to 2021 data, roughly half of Vermonters are covered by private insurance, and Medicare and Medicaid each cover about a quarter of the state’s population.Different types of health insurance pay hospitals very different amounts for the same procedure. Government payers — Medicare and Medicaid — pay sums that are set by federal and state regulations. Those amounts are, by and large, a fraction of what commercial insurance companies, such as Blue Cross Blue Shield, will pay for the same procedure. Commercial insurance prices, which are subject to some regulation by the Green Mountain Care Board, are the result of complex negotiations between health care providers and insurers. States that have adopted reference-based pricing limit how much some private insurance plans pay hospitals for care. It generally works by pegging commercial insurance rates to Medicare rates. For example, in Oregon, lawmakers limited in-network hospital prices for public employee plans to twice what Medicare would pay for the same procedures. (Some hospitals were exempt from the requirements.)Between 2020 and 2021, the system saved Oregon roughly $170 million, according to data compiled by the National Academy for State Health Policy, a nonprofit health care think tank.A handful of other states, including Colorado, Montana and North Carolina, have also implemented some form of reference-based pricing. In Vermont, the Green Mountain Care Board’s study examined how much people covered by state and school employee health plans would have saved from 2018 through the third quarter of 2023 if reference-based pricing had been implemented. In that period, Vermont hospitals charged those health plans prices equal to nearly three times what Medicare would have paid. Adjusting hospital prices to just twice Medicare rates would have saved roughly $400 million during that same time, with savings of $79 million in 2022 alone, according to the report.Don Tinney, president of the Vermont National Education Association, speaks in favor of a universal school meals bill during a press conference at the Statehouse in Montpelier on January 14, 2020. File photo by Glenn Russell/VTDigger‘Shifting the costs’But caps on prices for some commercial insurance plans means that hospitals lose out on revenue — and could seek to make up those losses elsewhere.If the payment a hospital receives from an insurer is decreased, the facility could resort to a technique called “balance billing,” charging patients on that insurance plan more money out of pocket to cover the cost of providing the care, the report notes. And, if those payment caps only apply for public employees, hospitals could then increase charges for other private plans, potentially hiking costs for people who receive insurance through a private sector employer or the state health insurance marketplace. Sara Teachout of Blue Cross/Blue Shield discusses the budget of the Green Mountain Care Board before the House Health Care Committee at the Statehouse in Montpelier on Feb. 20, 2019. File photo by Glenn Russell/VTDiggerSara Teachout, a spokesperson for BlueCross BlueShield of Vermont, Vermont’s largest private insurer, said the company supports reference-based pricing in principle but would prefer to see it applied across the board — not just for state and school employees.“Our concern is about shifting the costs,” she said. “So health insurance would get cheaper for those two employers, but then presumably increase (for others)?”It’s also not clear how Vermont’s hospitals would respond to such a move, although hospitals elsewhere have opposed the system. Mike Del Trecco, president and CEO of the Vermont Association of Hospitals and Health Systems, said he had not yet studied the report in detail. But any reforms to how health care is paid for would need to be done thoughtfully, he said.“I would be supportive of reviewing a payment model and understanding the complexities that go with it, and understanding the pros and cons, and approaching that in a way that we don’t create any unintended consequences,” he said. Read the story on VTDigger here: Hospital pricing reform could save Vermonters millions, study suggests.