Employers, however, do have considerable leverage when it comes to negotiating lower prices from health care providers in their communities. After all, 94 million of 156 million employees—more than 60 percent–receive health coverage through a self-insured employer. No health care organization can afford to disregard that large segment of their market, which represents an extraordinary cost-containment opportunity for an employer with the right strategy.

Reference-based pricing (RBP) has emerged as an excellent way for the self-insured to secure fair and reasonable payments to health care providers. While RBP is effective, self-funded plans need other tools at their disposal to ensure that employers are not being overcharged for services and that their employees receive high-quality care.

These tools include medical bill reviews to identify errors, provider relations outreach efforts to ensure their satisfaction and employee relations and advocacy to help workers understand their care options and costs and to work as a liaison between the provider and employee. An all-encompassing price reduction strategy that includes data tools and fostering strong provider relationships will yield more consistent and sustainable cost savings that can be used for employee bonuses or to reduce the cost of next year's employee portion of their health care. In greater detail, the following are the elements of a successful self-funded health plan cost-containment strategy.

Data transparency is key

Employers who have used preferred provider organization (PPO) agreements or other such insurer-negotiated plans may not even be aware that they are not receiving the best discount on medical services for their employees. On average typical PPO plans reimburse around 250 percent to 275 percent of Medicare for facility claims depending on the market. In some markets with little competition, the reimbursement rate can exceed 300 percent. According to AMPS database, large "outlier" claims that typically fall under stop-loss can regularly exceed 350 percent to 400 percent of Medicare.

While no employer wants their community's health care organization to lose money on care delivery, it is clear there is still considerable room for negotiation. The basis for a successful negotiation that arrives at a fair and rapid resolution is data transparency and intensive market knowledge. That includes being able to verify the data source, such as the health care provider's own claims and accepted payments, as well as its accuracy and completeness.

In a perfect world, RBP discussions should occur before care is delivered to establish prices for anticipated services. However, many negotiations occur between the self-funded plan and the provider after a major health event affecting an employee. The Business Group on Health survey found that 39 percent of large companies are focused on high-cost claims to reduce their health care expenses, so the ability to negotiate prices after such a significant care episode can meaningfully reduce the employer's overall spending. Including an RBP solution into the employer health plan can reduce specific premiums by 40 percent over traditional PPO plans and can reduce catastrophic claim costs by 50 percent.

Scrutinize medical bills

An important, often overlooked, aspect of the RBP process and fair pricing is reviewing claims from the provider to check for errors or overbilling. Inaccurate claims can lead to artificially low or high prices during negotiations. Various organizations have estimated that approximately 80 percent of medical claims contain errors, while our company's internal analysis has found that more than 83 percent of inpatient claims and 97 percent of catastrophic claims over $25,000 contain errors.

Regardless, since the collective goal is to always arrive at a fair and reasonable reimbursement, these errors and inaccuracies do not benefit anyone. Avoiding this obstacle nurturing good faith between both parties requires a deep analysis of claims by a panel of clinicians, preferably physicians, who will review each line of the itemized bill for accuracy. This ensures claim payment is made for services actually rendered and clinically relevant. This process can be optimized by using machine-learning software and decades of historical data to identify and remove duplicate charges, non-rendered services, data-entry errors, unbundling, inaccurate time charges, adverse clinical occurrences and hotel days.

Build provider relationships

Renegotiated, fair prices with providers need to be sustainable, which means self-insured employers need to avoid scorched-earth negotiation tactics, even if they have a very large population of covered lives that any health system would be eager to engage in their organization. Apart from agreeing to a fair and reasonable reimbursement, employers will want to emphasize the benefits to the provider organization.

One such advantage for a health care organization would be that their providers and facilities would be the self-insured plan's exclusive preferred network where employees would be encouraged to receive care for a lower out-of-pocket expense. Such a feature would also entice employees. A recent survey shows that lower health care costs is more important than having access to a wide choice of doctors and hospitals. Low costs increase in importance from 33 percent to 59 percent whereas having a wide network of doctors decreased in importance from 27 percent to 10 percent in 2018.

Educate employees

By this point, employees have become accustomed to selecting from a network of providers for lower-cost care. However, they are still very much on their own when it comes to finding the right providers and managing out-of-network bills. A conventional health plan may have an 800-number to call and may offer a provider directory, which is often out-of-date, but proactive outreach to plan members is rare..

This lack of proactive support could not come at a worse time for employees who continue to pay more in premiums and out-of-pocket for their medical services at a concerning rate. The 2019 Kaiser Family Foundation Employer Benefits Survey found the average worker is contributing $6,015 toward the cost of a family coverage with a conventional health plan. Since 2009, family premiums have increased by 54 percent while workers' contribution has increased by 71 percent, much faster than wages (26 percent) and inflation (20 percent).

To help control these costs, employees will require support and education in helping them understand the importance of choosing a provider from their employer's preferred network and how it can reduce their immediate out-of-pocket expenses and their premium costs in the long run. The employer needs to proactively communicate with members from the outset.

Forging mutually beneficial relationships

Despite the daunting rise in health care costs, employers with self-funded health plans do indeed have negotiating power to reduce their spending. Reference-based pricing, advanced analytic tools, and proactive outreach to providers and employees offer employers an advantage.

To ensure sustainability over the long-term, forging mutually beneficial relationships between providers and employers is perhaps the most important factor. Providers need to feel confident that they can expect reliable, timely and predictable reimbursement. Employers and employees need to know that they are paying a fair price for their medical services but one that is less than the traditional carrier PPOs. By extension, employers and providers will build strong ties for the common goals of high-quality care, lower costs and optimal health outcomes.

Lawrence Thompson is chief strategy and revenue officer for AMPS.

Read more:

• Five myths about reference-based pricing (and how to respond)
• How self-funding can address changing health care needs
• 3 creative ways to cut costs in your benefits plan