Reference Based Pricing: An Option to Help in Healthcare Cost Reduction

Though reference-based pricing is gaining popularity as an effective tool to help control the skyrocketing cost of healthcare, but the cost of healthcare is not at all an easy nut to crack and each solution comes with a different challenge.

The design of numerous reference-based pricing plans creates compliance challenges when it comes to the Affordable Care Act’s maximum cost sharing rules on out of pocket limits. Reference-based pricing programs are designed to reimburse healthcare providers a maximum price per procedure. Here the maximum price is called ‘reference price.’ And this is why to trigger this cost-conscious attitude, employers are implementing a method called reference-based pricing.

How Reference-Based Pricing Works?

Reference-based pricing functions by setting spending limits on some medical procedures- meaning you would only be covered up to the fixed limit for these services and then you are supposed to pay the cost difference out of pocket. Reference based pricing is most commonly applied to procedures with variable costs. For instance, colonoscopies might range from $400-$6000, all depending on the physician. Well, in this case, an enterprise using Reference Based Pricing might decide the spending limit somewhere the median price of the procedure, as per the market surveys.

And if you choose a health facility that charges above the decided spending limit for a particular procedure, you will need to pay the difference. Therefore, Reference-Based Pricing enables patients to choose the most affordable procedure, instead of choosing the expensive option without even comparing the other available options. Hence, this method saves you money.

Employer Benefits to Reference Based Pricing

Employers who use the Reference Based Pricing can experience two primary benefits:

  • Minimize total health care expenses
  • Higher employee engagement in health care decisions

The healthcare industry is one of the few industries where an individual can get a procedure done without having any idea of what it will cost and by setting up a limit, employers are encouraging employees to manage their healthcare decisions. Moreover, the cooperation of employees is very crucial when implementing a reference-based pricing model.


Reasons to Move Ahead

In a reference-based pricing model, employers enjoy most of the advantages, including the lower claim payments. Planners can see exactly what is being charged for a claim, which can provide an insight into how their plan is going on and the overall health of their employees. Therefore, it is rich in data. Reference-based pricing exemplifies that there are no additional networks to deal with, which is enticing to employees who look to receive care from specific providers.

What are the Essential Considerations?

If you are thinking that reference-based pricing is right for your organization, there are a number of factors that you need to consider:

  • Type of Reimbursement Model will you use

Two models are there- defined contribution and defined contribution with negotiation. In defined contribution model, employers work closely with a reference based pricing administrator to decide firm prices on the services. However in defined contribution with negotiation, a third party administrator decides the price but will negotiate the bills until the provider and the employer agree to a common point.


  • Administrative Model for Pricing

Most of the models are based on Medicare or CMS reimbursement, with a certain percentage. A higher margin exemplifies more providers will accept the full defined payment, without leaving any balance.


  • Role of Stop-loss Coverage

Failure to properly coordinate how reimbursements are defined by your plan document and stop loss vendor could expose employers and employees to the additional costs.


Employers using a reference-based pricing strategy make the health plan look for transparent and fair and also away from the insurer negotiations, which can further result in considerable amount of savings.  Reference based pricing models will continue to gain popularity, and especially as healthcare costs continue to rise exponentially. But implementing a plan comprises of knowing all the risks and considering what exactly is right for everyone involved.

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