What You Need to Know About Reference Based Pricing

If you have not heard of or considered referenced based pricing for your company’s group medical benefits strategy, you should definitely look into this model. It is the fastest growing trend in health insurance administration, and for good reason. Companies large and small are enjoying significant savings and are positioned to offer optimized health benefits for their employees.

What is Reference Based Pricing?

Under most health insurance plans, hospitals and providers are able to set their own prices for services and care – and, unsurprisingly, some charge a lot more than others. Health plans can usually negotiate discounts, but it is impossible to know how reasonable to initial cost from a provider actually is. It’s very arbitrary and you have no way of knowing until it is too late.
Reference-based pricing is a self-funded health plan design strategy that caps what the plan will pay providers for covered services. This cap, also referred to as an “allowable amount,” is based on a chosen metric or reference point – usually the cost of the service under Medicare plus a margin. Reference based pricing is a cost containment strategy that helps reduce costs by setting a maximum for certain services – typically high-cost services like surgeries. Industry experts say reference based pricing makes up about 10% of market share and is on the rise. Reference based pricing could grow to make up as much as 60% of the market share over the next 5 to 6 years.
Tying costs to Medicare pricing rather than an arbitrary number made up by a hospital helps keep the costs of healthcare transparent and sustainable for everyone. It maintains and improves comprehensive coverage for your employees.

Why Use Reference Based Pricing?

When a provider calls in for a service to be administered in a hospital, they must call in to pre-certify that service and to confirm the price. The cost will always be lower than what the hospital would charge under a traditional plan.When properly managed, reference based pricing plans can lower the likelihood of balance (unexpected) bills. If members are directed tobalance bill, the majority of reference based pricing administrators have a dedicated staff who work with providers to negotiate a settlement based on local benchmark data and applicable state balance billing regulations. Often the provider will accept payment in full (essentially “writing off the balance”), or another agreement can be reached.Reference based pricing is a time-tested strategy – your company can enjoy savings of up to 30% while offering superior health benefits to your employees. Using reference based pricing, you can make health costs consistent and fair for everybody. It’s a smart move for your business, your bottom line and your employees.Considering joining the reference based pricing trend and start taking more control of health costs.
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