State Negotiates Cost-saving Pricing with Large Hospitals

Montana officials on Friday touted a new pricing plan negotiated with the state's largest hospitals

By BOBBY CAINA CALVAN, Associated Press

HELENA — Montana officials on Friday touted a new pricing plan negotiated with the state’s largest hospitals that could save $25 million over the next two years in health care costs.

But there could be an unintended consequence: Higher out-of-pocket costs for state workers who don’t use a participating hospital.

The new pricing system, which went into effect July 1, is tied to rates already established under the Medicare system, the federal insurance program that serves the nation’s elderly.

While the state’s health insurance administrator, Missoula-based Allegiance, negotiated lower rates for medical services at nine of the state’s largest hospitals, those lower reimbursements would also apply at non-participating hospitals, said Sheila Hogan, the director of the Department of Administration, which oversees the state’s health plan.

Hospitals that haven’t signed on to the plan could seek payment from the patient for the difference between what the state’s health plan will pay and what the provider charges. The practice is known as balance billing.

In announcing the new pricing structure on Friday, state officials said the changes would provide better transparency in pricing, allowing state workers and their families to better plan for their health care spending. In some cases, costs for hospital services can vary wildly. Knee-replacement surgery could cost about $25,000 in one Montana hospital, but a similar procedure could cost more than $100,000 at another hospital, state officials said.

Benefis Health Systems in Great Falls is the major exception to Allegiance’s new pricing contracts with the state’s largest hospitals. Allegiance said negotiations are underway with other facilities. About 90 percent of what the state pays on hospitals goes to the 10 largest facilities, state officials said.

New pricing contracts are based on reimbursement rates set by Medicare, with Montana hospitals reimbursed at least double the federally negotiated rates.

While state officials call the new plan “transparent pricing,” finding out the cost of a specific health services is still a relatively complicated exercise for most consumers. Later this summer, Allegiance is expected to release a health-care pricing blue book that will help members more easily comparison shop for medical services.

Gov. Steve Bullock, who is running for re-election, announced the plan during a visit to Billings Clinic.

The state is self-insured and has been looking for ways to reduce health care costs. Montana spends about $135 million every year to provide health care to its 31,000 employees and their dependents, according to Budget Director Dan Villa.

The $25 million savings is the reduced amount of payouts until the end of 2018 because of lower costs for hospital services.

“This change in reimbursement method is game-changing for the state of Montana,” Ron Dewsnup, the president of Allegiance, said in a statement.

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