Reference-Based Pricing (RBP): What It Is and How It Works

Healthcare costs have historically gone one way — up.

The rising costs continue to cause frustration for company leaders looking to manage costs while making high-quality healthcare available to employees. To solve this challenge, some employers are turning to an innovative strategy known as, Reference-Based Pricing (RBP).

What is Reference-Based Pricing?

Reference-Based Pricing (RBP) is a healthcare cost containment strategy that allows an employer to set monetary limits on certain medical procedures. This offsets some of the employer costs and encourages employees to be more involved in their medical decisions.

In the most literal and strictest form of RBP approaches, if an employee has a procedure with costs that exceed the RBP limit, that employee is responsible for the difference. The procedures and services covered under RBP must be non-life threatening and non-urgent to provide time for employees to shop around for the best available option and try to remain within the RBP price limit.

To implement the RBP strategy, it is crucial to work with a knowledgeable vendor who can advise on setting price limits based on the facility’s actual cost or Medicare reimbursement will cover high-quality procedures and limit employer costs. Employers also want to make sure they are working with an RBP firm that includes legal defense and strong member advocacy/customer support services.

“Bottom-Up” Pricing

With Reference-based Pricing, employers can completely avoid the inflated starting price points set by most healthcare providers and hospitals. Through this structure, all procedures (including scans and lab tests that vary in price) are leveled out at a standard price negotiated by the employer and advisor.

One way to set price limits is to use a percentage or multiplier of the Medicare cost (the amount Medicare reimburses for the procedure) for a procedure. Another option, optimal for procedure costs that tend to fluctuate, is to base it on the median cost. Either strategy significantly reduces price gaps and eliminates the possibility of paying exorbitant prices for procedures that could cost much less.

Cost Transparency

Historically, it has been notoriously difficult to receive concrete pricing on medical procedures until the procedure has been completed and the recipient receives the invoice. RBP can prevent employees and employers from dealing with unknown costs since prices for medical procedures will already be determined by working with healthcare providers willing to accept RBP’s fixed payment. In this case, employees will always know the exact cost under their healthcare benefits program and employers won’t be blindsided by high, unexpected medical bills.

Employees Get Engaged in Healthcare Decisions

Unlike most group coverage healthcare plans, there is not a designated list of providers. Therefore when implementing RBP, employees must be active in making healthcare decisions by seeking trustworthy specialists who accept RBP price limit. This will help employees be more vigilant about where they go, more informed on the team that is ready to assist them, and ensure a quality experience when utilizing their medical plan.

When choosing an RBP partner, employers should evaluate the firm’s: 

  • Claim auditing capabilities
  • Member advocacy and defense
  • Analytics and reporting
  • Years of experience and customer reviews

Understanding the costs at the forefront will help employees make decisions that fit their health and budget requirements and will be fully aware of the possibility of being “balanced billed” for the difference and how to try and avoid such charges.

Is Reference-Based Pricing Right for Your Company?

Recently, Hampton Consulting Corp’s Chris Marren hosted a webinar breaking down the basics  of Reference-Based Pricing. If you would like more insight into RBP solutions, watch the webinar.

If you think RBP is right for your company, let us know. Benefits Quarterback powered by Hampton Consulting Corp. was established to be your trusted group benefit and  human resource solution partner. To see how Benefits QB gameplan can help your company save on healthcare costs, complete our two-minute drill.