What is Reference-Based Pricing in Healthcare?

With each year that passes, the cost of health care continues to rise. Inflation is extremely prevalent in this field regardless of if you are reviewing personal plans for yourself or if you are considering efficient, cost-effective coverage as an employer. 

Businesses in particular want options that ensure their employees are efficiently protected while remaining within their budget, and most importantly, staying compliant to the industry’s requirements. While there are many options and directions you can take, there is one in particular we want to discuss in detail: Reference-based pricing. 

What is it, who is it for, what does it promise and cover, what makes it different, and most importantly… is it worth considering?

Reference-based pricing, or RBP for short, is an alternative offered for employee health insurance. It provides a different option towards traditional pricing that potentially stabilizes or reduces and offsets claims costs. 

This model of healthcare pays claims based on an established benchmark as opposed to fees that are determined and made by the carrier of the plans themselves. In essence, costs are pre-determined and set based on referenced price points as opposed to mark-ups as seen throughout the market. 

Some of these benchmarks are as follows:

• Medicare reimbursement rates
• Reported wholesale prices
• Provider’s reported costs
• Third-party data sets

There are several names that RBP goes by inside the healthcare industry. Further reading on the subject may have you seeing things such as “Medicare reference-based pricing”, “reference pricing” or “reference-based reimbursement”. RBP provides a different strategy towards containing costs by paying clinics, hospitals, and their doctors a fixed percentage of those above-listed benchmarks. It can be an excellent option to consider for companies looking for health care that is reasonable, affordable yet still capable of coming off as “attractive” when listed in employee benefits.

There is no “one size fits all” option for health insurance. Different companies may need different options based on the size of their company, their budget, their risk threshold, etc. So, the question becomes: is reference-based pricing the right fit for YOUR group? Considering the potential benefits and pitfalls of this option can help, so let’s go over them in more detail.

In a process known as “narrowing networks”, high-cost providers are eliminated from networks altogether, removing what is deemed as traditional. This is done, as mentioned above, by agreeing to pay a certain amount above Medicare-based pricing in the health care market. By reimbursing the hospital directly, they can expect savings of anywhere from 5-30% (as opposed to reimbursement through Medicare) depending on the service and what state it occurs in. RBP plans can promise significant employer savings in doing so. 

Another added benefit is the transparency of RBP. Eliminating providers from the system streamlines the cost structure so the chances of missing out on hidden fees or being misdirected on reimbursement guidelines are minimized if not removed outright. 

It can be very easy for employers to not see the desired results of this cost-saving strategy, and for a variety of reasons at that. One of the worst-case scenarios is that providers can ultimately deny care for any particular reason, especially if the number of patients using RBP hits a critical mass, or borderline maximum capacity. Employers who run the risk of offering employees RBP without providing protections via provider contracts also open the possibility of litigation. More often than not, it is best to offer agreements in writing as opposed to disputing reimbursements that come through.

Members’ financial standing can also be put at risk through RBP by the process of balance billing. Sometimes called “surprise billing”, this can occur when members are billed the difference between the provider’s charge and the allowed amount in the plan. This can affect members financially, especially if not being made aware of the risk ahead of time. 

Ultimately, reference-based pricing can yield incredible savings for employers looking to reduce costs in a market that is seeing inflating annual costs. Taking advantage of a plan this complex and diverse can yield significant risks for employers that have not properly and carefully planned. It is important for your employees to be protected, first and foremost, as prioritizing costs over the care of your staff can create situations more expensive to resolve than any normal health care plan. 

Choose a vendor that has experience with RBP, and write out thorough, clear explanations of what RBP is so your employees can be prepared for the possibility of balance billing and more. If properly planned and thought out, you will have mitigated disruptions that ensure your group can enjoy the incredible financial benefits of using reference-based pricing. 

Remember, Fox Insurance believes in the importance of employers having more control in what they pay for, so we go over this plan among other self-funded options as a priority when discussing protection for your employees. Contact us so that we can begin those conversations for you.