State auditors and public-sector benefits groups press reference-based pricing as way to rein in rising hospital costs

Wednesday, Feb. 5 — State auditors, union benefit administrators and school plan trustees told a legislative committee that reference-based pricing (RBP) could cut what Vermont public plans pay hospitals and help stabilize sharply rising health-care costs for state employees and teachers.

The deputy state auditor summarized an office analysis showing large price variation among Vermont hospitals, a multi‑year swing in the state employee health fund from a surplus to an approximately $39.9 million deficit, and a requested February budget adjustment of about $18.5 million in general fund to partly cover the shortfall. He said the office’s limited modeling of 39 procedures suggested RBP could generate millions in savings and recommended the state employee plan as a possible pilot.

The auditor’s office presentation placed the issue in context: hospital prices paid by commercial plans vary dramatically for the same procedure, and that unexplained variation is the target of RBP. “The key opportunity, if there’s an opportunity in reference-based pricing, I believe, is the unexplained portion,” the deputy state auditor said, describing the office’s role as informational rather than advocacy.

Why it matters: Representatives of the two largest public-sector pools in Vermont told the committee the immediate fiscal pressure is real. Adam Norton of the Vermont State Employees Association said the state employee plan — which he said covers roughly 15,000 people — faced a large swing in net position and that hospital costs were the leading driver. Mark Hage, director of benefit programs for the Vermont NEA and long‑time trust administrator for the Vermont Education Health Initiative (VHII), said VHII covers about 35,000 lives and that the Green Mountain Care Board analysis showed VHII’s hospital reimbursements averaged roughly 301%–316% of Medicare during the study period.

Public plans and out‑of‑state examples: Witnesses reviewed how other states have pursued RBP. Montana negotiated hospital‑specific percentages of Medicare for its state employee plan and, according to an independent analysis cited by witnesses, recorded tens of millions in savings in early years. Oregon enacted statute in 2017 that set caps (for participating hospitals) at 200% of Medicare for many services and reported independent actuarial savings of roughly $59 million in 2020 and $113 million in 2021 for the public-sector pool. Witnesses said those states did not report hospital closures attributable to RBP and did not find clear evidence that hospitals offset lower public‑sector payments by raising prices to commercial payers.

Insurer and operational cautions: Sarah Teachout of Blue Cross and Blue Shield of Vermont said the carrier views RBP as a legitimate tool but urged careful design. She recommended central oversight (preferably system‑wide rather than employer‑by‑employer), phasing (by service type, by provider class and by the Medicare multiple chosen), and avoiding rollouts that only apply to a single employer group, which could create competitive or fairness concerns. Teachout noted price‑transparency tools exist but are rarely used by members and that some services (for example, MRI) are simpler to standardize than complex episodes of care.

Union and trustee position: The VSEA and Vermont NEA witnesses urged a pilot on public plans now, saying the public pools face acute cost pressures that affect premiums, wage negotiations and recruitment. Norton pleaded for a near‑term pilot, saying, “Reference-based pricing is the only reform we can point to that can have immediate effect.” Hage urged the committee to hear detailed testimony from Montana and Oregon practitioners and from independent analysts.

Questions and open issues: Committee members repeatedly asked about access impacts, whether RBP would cause patients to travel for care, and whether hospitals would respond by shifting costs to non‑covered payers. Panelists said published evaluations from Oregon and Montana have not documented the feared harms but acknowledged studies and monitoring should accompany any implementation. Witnesses also emphasized design choices — which hospitals or services to exempt (for example, many states exempt critical access hospitals), what percentage of Medicare to use as the reference, and whether to phase changes in by service type — would determine outcomes.

Discussion vs. decisions: The hearing produced no formal votes or orders. The discussion generated three distinct outcomes: (1) the auditor’s office provided background and urged further study and outreach to practitioners in other states; (2) public‑sector representatives asked the committee to adopt a pilot for the state employee plan (an administrative option) or to authorize further action; and (3) insurers and other witnesses recommended careful phasing, central oversight and systemwide approaches if RBP is adopted.

What’s next: Witnesses recommended inviting officials from Montana, Oregon and the Washington Health Care Authority and consulting independent analysts before the committee acts. The auditor’s office and public‑plan representatives suggested a targeted pilot on the state employee health plan as an immediate next step; insurers emphasized that operational costs, provider engagement and transitional arrangements will need to be planned before any rollout.

Ending note: Committee members acknowledged the urgency — the state employee fund has moved from a multi‑million dollar surplus in recent years to a multi‑million dollar deficit, and witnesses framed RBP as one of several reforms (including drug‑pricing initiatives and stronger primary‑care investments) that could be combined to stabilize public‑sector health spending.