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reference based pricing (RBP)

Reference based pricing, an increasingly popular benefits trend for self-funded groups, is a system aimed at controlling costs wherein employers set a fixed limit on the amount they’ll pay for certain healthcare services with that limit being based upon a percentage of the Medicare rate. It’s been shown to lower claims expenses by 50% in some cases. Here’s how it works:

  1. When a member receives care from a provider, the provider then submits to the employer for reimbursement
  2. The claim is re-priced and the provider receives payment as a percentage of Medicare – usually 120-140%. For example: a member undergoes surgery, for which the hospital expects to be paid $2,500; the Medicare rate, however, is $500. We’ll say in this case that the reference-based pricing plan’s fixed limit is 120% of the Medicare price, so the employer would pay the care provider $600
  3. In the above instance, if the provider wasn’t satisfied with the reimbursement received, they may bill the member for the difference – i.e., a balance bill – but this only occurs in less than 5% of transactions
  4. On top of keeping premiums low and adding transparency to health plan pricing, another prominent perk of RBP is there are no networks! Employees can seek care from any doctor or provider they like
  5. Everything goes through the employer’s chosen third-party administrator/vendor – they pay claims, act as the liaison in cases where there’s a balance bill, provide customer service, and facilitate the renewal

For a fuller picture of the pros and cons, you can read about large-scale implementations of RBP by Montana and North Carolina.

And you can also watch the below breakdown of why RPB may not be a universal good fit from Tyson Fuehrer, our VP and benefits broker:

We’d be thrilled to help provide an analysis of whether reference-based pricing is a good fit for your business; get in touch here:

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