What Is Reference Based Pricing?
Reference-based pricing is an alternative way of pricing healthcare procedures and services. Instead of starting with inflated pricing at previously negotiated discounts, reference-based pricing sets costs to a percentage — typically somewhere between 120 and 150 percent — of what Medicare would pay a provider. Why Medicare? Because Medicare pricing is more reflective of what most medical procedures actually cost.
You see, traditional insurance carriers rely on what many would say is an inefficient pricing model. They start with an absurdly high price, usually marked up by the provider itself, that doesn't reflect the actual cost of the procedure and then negotiate a discount from there. Very few people benefit from this top-down method of doing things — it's certainly worse for the end consumer.
Reference Based Pricing As A Cost Containment Tool
Reference-based pricing could prove to be a great cost containment tool for employers who are self-funding their health insurance plans. With RBP you are often paying less than half of what you would pay otherwise. Pricing is also more predictable since costs are based on Medicare rates. These rates are known in advance and do not vary from provider to provider. You always know what you will be paying for a procedure well in advance.
Reference Based Pricing Comes With Some Caveats
There are a few things that you and your workforce will have to get used to with reference-based pricing. For example, you may have to deal with some push-back from certain healthcare providers. Some RBP plans allow you to set a maximum percentage benchmark. This is the maximum price that you'll pay in the event of provider push-back. For example, if your typical pricing is 140 percent of the Medicare cost you could set your maximum percentage benchmark at 200 percent and negotiate up to that point. It depends on how aggressive the provider wants to get with is profit margins and how much room you’d like to give him. Ultimately, some providers might weed themselves out of the running.
Another consideration is how to educate employees about this new way of doing things. Reference-based pricing will also result in out of pocket cost savings for employees, especially when paired with direct-care provider contracting, but when they go out of network they may have to pay a higher portion of the bill out of pocket. This puts a little more responsibility on the employee. They'll have to shop around for providers. This isn't necessarily a bad thing, as employees who are more aware of the cost of their care often make better decisions when it comes to their health.
Reference-based pricing is just one tool that could be pulled from your cost containment toolbox; if you’ve gotten yourself outside of the challenging circle that you’ve been in with your health insurance for the past five years or more. Yes, there are steps you can take to invoke change but you can’t keep doing the same old thing and expect different outcomes. The best advice we can give you as an employer is to diversify your plan model and don't limit yourself to one way of doing things. As the industry evolves, evolve your healthcare management processes with it, so that you can take back control of your employee health program costs- now and sustainably over time.
If you are tired of the same health plan pricing and results year over year; contact us at Summerlin-Roberts today. We will shed light on some very important industry secrets related to your health insurance and will help you find REAL solutions for lowering plan costs. For more information about providing affordable benefits that satisfy employees, we’re here to help!