In Cost Plus Pricing, the plan and area hospitals typically agree on a pre-determined margin – perhaps 15% to 20% over Medicare.
The most significant difference between a health plan with Value Based Pricing and a traditional PPO plan is that no provider network is involved. While some health plans may still contract with a physician network, Value Based Pricing eliminates hospital networks in favor of pre-negotiated price schedules.
Years ago, PPO networks offered a real advantage because many providers participated in only one network. Today, the lines have blurred and many providers belong to every network in a given market, diminishing the real value of a network discount.
A need for price transparency, especially among smaller groups, makes it very hard to identify the real savings in a PPO environment. As studies have long shown, the price for a given healthcare procedure performed in the same city can vary greatly, often with little difference in quality. As long as these conditions persist, interest in Cost Plus or Value Based Pricing will continue to grow as employers look for ways to better manage the costs and future risks of healthcare.