reference-based pricing
Employee Benefits

Reference-Based Pricing: Eyes Wide Open

Jen Kivlin
Jen Kivlin
Vice President, Employee Benefits Strategic Leadership

Reference-based pricing (RBP) is a hot topic and will come up in almost any publication on employee benefits. If you don’t really understand what it is, you’re not alone! Nothing in healthcare is simple anymore, and I would say it only continues to get more complex.

While RBP has been evolving over the last 10 years, still less than 1% of people in employer-sponsored health plans are under this pricing model.

To give you a little background…RBP is a system some employers use for healthcare cost containment purposes. This method is different from more traditional pricing options in that the employer caps the amount they’ll agree to cover for certain non-emergent medical procedures that can vary greatly in price yet not in outcome, such as hip or knee replacements.

In the simplest form, RBP allows members to seek care from any provider (with no predetermined in-network). From there, the member receives a bill for the full retail amount, then the reference-based administrator reaches out to the provider and negotiates what the plan will agree to pay (for example: 140% of Medicare). There’s no contractual obligation for the provider to accept the offer of lower payment.

Now, if you have more in-depth knowledge in RBP, you could poke holes all over that summary…and I fully acknowledge that. It’s like trying to summarize how the pharmacy contracting works in only 3 sentences.

If I had to give two key pieces of advice when evaluating RBP, they would be this:

  1. Go into it eyes wide open. There are a lot of moving pieces and differences from the traditional health plan approach.
  2. RBP isn’t a strategy. It should be viewed as a PIECE of your overall strategy.

Here are a few key areas of RBP.

  1. Member education and customer service play a huge role in implementing RBP. Since there is no pre-determined “in-network” agreement, the providers haven’t agreed to the payment schedule your plan is willing to pay. There can be threats of legal action and providers can even refuse to see members without payment up front, so you need to be prepared.
  2. Consider whether a lower negotiated price is worth the additional noise and disruption for your employees and their families. What are the core beliefs of your company and is there buy-in at all levels on these beliefs?
  3. New vendors are entering the space on a regular basis, and their philosophies on the process will be a little different. This means everything from when the negotiation happens on the service (at pre-certification or after it’s been billed)…to how your stoploss carrier will handle the claims…to what member experience will be like…varies by vendor.
  4. Healthcare is very local, so one vendor may be more successful in your market than another.
  5. Don’t forget all the different ways you need to incorporate RBP into your overall strategy. Narrow networks, accountable care organization (ACO) contracting, and improving the health of your members can all play a part in not only impacting the price you’re paying, but also reducing the utilization in your plan.

At Holmes Murphy, we help our customers navigate not only tried and true solutions, but also the complexities of emerging trends such as RBP. So, if you have questions, please don’t hesitate to reach out to us. What’s good for one company, may not be good for another. We can help you with your evaluation!

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