Reference Based Pricing
for the Self-Funded Community
Explaining the alternative provider payment method that delivers a more rational,
true cost of care.
Defining Reference Based Pricing
The rising cost of healthcare directly affects the increasing premium costs for fully insured health plans, or what most refer to as traditional health insurance or PPO plans. In response, employers are considering health coverage alternatives like Reference Based Pricing (RBP). The concept has been around for decades, but RBP is becoming more commonplace in the employer market and self-funded community because of its sustainable, cost-effective benefits.
What is Reference Based Pricing?
Reference Based Pricing is a reimbursement method in which the self-funded, employer health plan limits the amount paid to providers and facilities based on standard reimbursement criteria to establish a rational cost of care. The most common metric referred to for this criteria is Medicare plus a percentage, also known as ‘cost plus’. Medicare is the universally understood and accepted form of healthcare pricing and is the governing standard administered by the Centers for Medicare and Medicaid Services. Additional metrics that are factored in include reported provider costs, claim data at the state and federal levels, and other third-party insight.
Third party administrators, benefit advisers, stop-loss carriers and self-funded employers refer to the concept in a number of ways – Reference Based Reimbursement, Value Based , Metric-Based Pricing. These terms, including Reference Based Pricing, all represent healthcare cost control methods that share the common outcome of health benefits savings and reimbursement that is less than the discounts offered on traditional network prices. These methods also focus on the same level or widened access to physicians that deliver desirable value for the services rendered at the lower cost.
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How Does Reference Based Pricing Work?
RBP is a lot like shopping. When you go to the grocery store or local retailer, and you look at two of the same items, you may notice one is priced higher than the other. There are no differences other than the price tag. Healthcare is the same; it’s a commodity. When the elements of care and quality are the same for a set procedure, we are left scratching our heads when faced with an inflated price tag. We also are left wondering about the significance of a set network discount applied to a fictitious price, not consistent or visible to the plan or the member.
The plan sets the Medicare plus amount(s) for how much to pay a hospital, physician, facility or other specialty care in the plan document. The member then goes to a provider for medical services. Following the visit, the healthcare claim is priced to the plan terms to ensure accuracy of the billed charges. For example, if the Medicare rate is $500 on a procedure, and the plan pays 150% of Medicare, the plan would pay the provider $750. In most cases, the provider accepts the amount as payment in full. No one can guarantee that this will happen 100% of the time. In the instance that a provider charges more than the plan rate, the RFP partner works with the plan for swift resolution.
The outcome – a rational cost for care. Provider reimbursements typically range between 120% – 200% of Medicare. Compare these to typical network plan reimbursements ranging from 240% – 2,000% of Medicare. Check out our Price Map to see the going Medicare payment rates in your area.
In the case of Payer Compass’ RBP solution, Innovate360, we see clients save up to 25% more than traditional network plans and 73%+/- cost savings on individual healthcare claims.
There are instances where the plan prefers to act a bit more conservatively, especially if it is their first experience using reference pricing. In these scenarios, the plan directs its members to some type of network – PPO, narrow network, provider direct contracting or a hybrid of these – and utilizes RBP for cases outside the expressed option(s). Additionally, this type of plan can work for single-case agreements – instances where a contract is established between the health plan and an out-of-network provider for a specific plan member that allows the member to receive services from the provider at the plan specified rate.
Whether a plan takes a more cautious approach or goes all in, the out-of-pocket expenses and provider reimbursement are far less than your typical health insurance network.
Why Do We Need Reference Based Pricing?
Two words: affordable care.
Employers need sustainability and affordability. Workers and their dependents need access and affordability. RBP makes it possible to meet these needs by championing a fair cost for care with hospitals, physicians and other healthcare entities.
Why Is Reference Based Pricing So Great?
Reference Based Pricing puts money back into the hands of everyone in the self-funded community, from the employer paying for the benefits to the members and their beneficiaries saving on care expenses, to the Stop Loss Carrier and the Third-Party Administrator who actualize less coverage and operational expenses, respectively.
RBP also gives the freedom of choice. Health plan members are in the habit of seeking medical services through a defined network – if the doctor or hospital isn’t on the list, they can’t go. That’s not the case with RBP. This type of plan model allows plans to remove the barrier so that there is no network. Hard to believe, but true.
With more affordable, accessible care, RBP creates the opportunity for a healthier employee population – you can’t put a price tag on that sort of return.
By altering the way healthcare is priced and using Medicare as the baseline, confusion is eliminated, and clarity gained. Price transparency is revealed from behind the dark ambiguous curtain of hospital charge masters. Using a plan model that integrates a reference price, a mutually-beneficial opportunity is created for plan and provider that provides a rational cost for care, while also making it possible for the plan member to receive the treatment needed.