Does this ring a bell?
An employee of your company, let’s call him John, is covered by your health insurance plan. Unfortunately, John needs arthroscopic knee surgery.
John doesn’t have time to go to every provider in the area for a price quote. He’s busy doing an awesome job working for your company in balance with the lifestyle he chooses. So he visits his go-to hospital, Hospital A, which is in-network with his insurance plan. Hospital A charges $10,000 for the surgery.
But John didn’t need to pay that much because Hospital B would have only charged $7,000 for the same procedure. And that means less economic efficiency for John and your company.
How frustrating it is that the price of the same procedure can significantly vary from one provider to another.
Wouldn’t it be great if there was a way to ensure predictable, transparent, and affordable healthcare costs?
Enter, reference-based pricing (RBP).
Keep reading because, in this article, we’ll answer your questions about RBP, including
Let’s jump in.
Reference-based pricing (RBP) is a pricing model that sets predefined limits on how much a company’s insurance will pay for specific medical services or treatments based on a reference price.
Who decides the reference price, you ask?
Often, Medicare reimbursements are used as benchmarks for how much a medical procedure would cost.
Medicare pays hospitals much less than most commercial insurance pays.
So, using Medicare reimbursements as a reference point can help companies save money on healthcare costs.
Other possible reference points include
And although all of the above can work, Medicare reimbursement rates are the most commonly used simply because they are standardized and publicly available.
This formula calculates how much your company’s insurance will pay for various medical services and treatments in a reference-based pricing model.
The insurance companies using RBP will generally end up paying MORE than the reference point, such as the amount Medicare reimburses, often to the tune of 120% to 180% more. Believe it or not, that rate is a lot cheaper than what traditional insurance rates usually pay.
Here is the equation for calculating the reimbursement rate.
And here’s an example of how this calculation works:
Remember John who paid too much for arthroscopic knee surgery in the introduction of this blog post? Imagine now that John had had the benefits of reference-based pricing to guide his health journey. And let’s say his RBP plan sets the reimbursement rate at 150% of Medicare for arthroscopic knee surgery.
And let’s say Medicare reimburses about $3,000 for arthroscopic knee surgery…
The RBP insurance plan would pay up to $4,500 for the arthroscopic knee surgery.
But, what happens when the billed charges exceed this rate (e.g., $6,000)?
Unless negotiations are conducted prior to the service, the patient may be responsible for the difference. This is known as balance billing.
To avoid balance billing, insurers or employers usually have their attorneys or patient advocates negotiate with the facility to decrease or eliminate the patient’s balance.
Traditional plans like Preferred Provider Organization (PPO) and reference-based pricing (RBP) have the same objective – to help you and your employees pay less. However, these two plans operate differently from each other.
Here is a breakdown of the differences between traditional PPO and RBP:
PPO plans involve complex contracts between insurers and healthcare providers. These contracts set specific payment rates, and patients often must use in-network providers for cost savings.
RBP, on the other hand, employs a predictable percentage-based model tied to a benchmark, such as Medicare rates.
Traditional plans limit patients’ choice of healthcare providers to an established network of in-network doctors and hospitals, which leads to higher out-of-pocket costs if patients go out of network.
RBP generally aims to promote a broader range of provider choices, including both in-network and out-of-network options. This expanded network can allow employees greater flexibility in choosing the best providers for their healthcare needs.
However, since there’s no strict network of providers, ensuring that your chosen healthcare provider is willing to accept the reference-based pricing payment model is crucial.
Traditional plans may result in unforeseen, higher out-of-pocket costs for employees, as copays, deductibles, and coinsurance can add up quickly.
With RBP, you gain cost predictability, which helps you budget more effectively. RBP can even lead to cost savings for companies while offering employees the comfort of knowing their maximum liability.
Traditional plans often lack transparency in pricing. This may prevent employees from fully understanding the cost of their healthcare services and making informed choices.
In contrast, transparency is a core feature of RBP. The pricing model provides clear, predetermined limits for what your company will pay. Therefore, employees can make informed decisions about their healthcare, promoting cost-conscious choices.
The pros of reference-based pricing may include improved budget control, budget predictability, negotiation potential, and empowering employees.
Cons of reference-based pricing may include the risk of incurring “balance billing,” administrative complexity, initial confusion for those who are not used to it, provider disputes, and market variation in different locations.
Healthee is a comprehensive benefits navigation app designed to make each user’s healthcare journey smoother, more informed, and cost-effective with or without RBP.
Here’s how Healthee can help:
Healthee equips employees with knowledge: Healthee makes the healthcare process transparent, showing users the cost of healthcare services at the click of a button.
Healthee unpacks medical costs: Healthee breaks down charges. This transparency helps users understand their financial commitments and better prepare for them.
Healthee can help simplify medical bills and find the most affordable providers. It saves money on healthcare and boosts confidence in benefits.
Click here to learn more about the Healthee App.