Things you should know About Reference Based Pricing Companies

Reference based pricing is a system that some employers have started using for the purpose of cost containment. This method is different from other traditional pricing options in which the employer caps the amount they agree to cover for certain non-emergent medical procedures. This can vary significantly in price but not in the outcome.

Generally, the amount that the provider bill isn't necessarily indicative of how much the service actually costs the provider to perform. Also, it is not believed to be a reflection of the market value. Usually, every insurance provider has a pre-negotiated price that they are willing to pay for the services. The only universally accepted payment across most of the providers is the Medicare-negotiated price that is mostly not enough to cover for the service with minimal margins for the doctors and hospitals.

Thus, Reference based pricing companies agree to pay a percentage above the Medicare-negotiated price to account for the lack of margin and to better satisfy the providers. This approach is majorly seen as "reasonable." With the assistance of the employee benefits broker, a fixed payment is negotiated with the providers in the region through a third-party administrator or through reference-based pricing specialists.

Does Reference Based Pricing (RBP) Actually Save Money?

Reference based pricing companies follow a similar principle of consumer-driven healthcare in which the policyholder is empowered to make informed decisions regarding their own care. Pricing in healthcare varies from one provider to another and across the hospital networks, so shopping around can genuinely save money.

For procedures and tests (like knee or hip replacements) that are less time-sensitive, it can save money if the employee chooses the one that they're most comfortable with.

The thought process behind RBP is that if enrollees use less expensive providers that agree to accept RBP, 'it'll cost the self-insured companies less. This in turn allows the employer to save on the premiums, these savings can then be passed through to the employee in the form of lower costs or as a richer benefit plan.

Implementing Reference Based Pricing

So, if you are interested in transitioning a health plan that provides pricing transparency and adopts fair market value, then you must look out for Reference Based Pricing companies. However, it'll take quite a bit of effort on the part of upper-level administration during implementation so that employees understand the changes in the plan and how 'it'll affect the way they use insurance.