Montana Switches Gears to Try to Bargain for Lower Health Care Costs for

Montana is signaling it might step away from an innovative way of setting the prices its public employee health plan pays hospitals for services, an approach that has saved the state millions of dollars and become a model for health plans nationwide.

The plan gained national renown among employers and health care price reform advocates when, in 2016, it established maximum amounts the health plan would pay for all inpatient and outpatient services. Those amounts were pegged to Medicare reimbursement rates. The adoption of that model, known as reference-based pricing, has saved the state tens of millions of dollars. Taxpayers help fund the medical plan, which insures public employees and their families, for a total of about 28,800 people.

Montana didn’t invent reference-based pricing, but the state made waves by having a health care plan of that size set prices for all services, not just certain procedures, such as knee replacements.

Now, Montana is positioning itself to tweak its model, just as more states and employers, seeking to cut costs, consider adopting it. That has health economists and those working to lower hospital prices elsewhere wondering whether the state is once again moving ahead of the curve — or setting itself up for a setback.

“We look to Montana for the success story,” said Gloria Sachdev, president of the Employers’ Forum of Indiana, a nonprofit that tries to improve health care pricing. “Now that it’s doing something new, I think a lot of eyes will be on Montana.”

In September, the state awarded Blue Cross and Blue Shield of Montana a contract to take over administration of the public employee health plan starting next year. The contract calls for using Medicare’s rates as a baseline to set overall targets for the amounts the plan will reimburse hospitals. It gives Blue Cross the ability to meet those goals with reference-based pricing — but also by negotiating deals with individual health care providers using a mix of reimbursement models.

The state said in a news release announcing the contract that its new reimbursement targets will save $28 million over the next three years. But the details in the contract on how that will be achieved are vague.

Blue Cross, one of Montana’s largest insurers, won’t elaborate on its plans while Allegiance Benefit Plan Management, the public employee health plan’s current administrator, challenges the state’s contracting decision. Allegiance had held the contract since the state adopted the reference-based pricing model.

John Doran, a Blue Cross spokesperson, said state officials instructed company officials to direct all questions to the Montana Department of Administration.

Asked how upcoming changes will affect the health plan’s existing model, Montana officials pointed to the state’s contract with Blue Cross. According to that document, Blue Cross can create “custom alternative payment arrangements with providers” with state approval.

In the state’s news release, officials said the goal is to “modernize” its six-year-old reimbursement strategy. Department of Administration Director Misty…

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