How Does Reference-Based Pricing Work: Step-by-Step Guide

It’s no secret that rising healthcare costs are hitting the bottom lines of employers all across the country. This is troubling, as employee benefits like healthcare coverage do more than keep employees happy and healthy, they also facilitate a more productive workforce. 

One result of increasing healthcare costs is the challenge of finding a balance between quality employee coverage and minimizing costs to avoid negatively impacting your ROI. Offering quality employee healthcare benefits enables you to attract and retain the best workers. However, the cost may be increasingly difficult to justify, which often leaves employers feeling drained of valuable resources.

What if you could increase the quality of healthcare coverage and services while also mitigating costs? Luckily, some new and innovative healthcare models can help employers have their cake and eat it, too. 

One such model is a self-insured reimbursement method known as reference-based pricing (RBP). You’re probably wondering, “How does reference-based pricing work?” This article answers your question by laying out a step-by-step guide to help you understand the details of RBP. Armed with this understanding, you can decide if using a reference-based pricing model is right for your organization.

What is Reference-Based Pricing?

How does reference-based pricing work? Let’s outline the basic mechanics of the method before getting into the self-insured process.

Reference-based pricing is a healthcare cost containment model aimed at bringing transparency and lower prices to billed medical services. It uses a database of aggregated prices for the same or similar medical procedures and defines a new point of reference from which to negotiate lower prices from healthcare providers.

This method provides immediate savings because most traditional healthcare models allow hospitals to set the prices they determine for services, regardless of their own costs. Because most insurance companies will pay out, regardless of the billed amount, few people question the billed charges. 

Insurance companies charge fees and annual premiums for employers and their employees to be part of their healthcare “group” (coupled with employers and employees also paying for much of the service costs), so they stand to profit regardless of the billing amount. For example, private insurance companies typically pay more than double what Medicare pays for the same services. The upcharges are simply passed along to employers and their plan members. 

Instead, RBP uses the average price of services billed to Medicare as a reference point to negotiate with providers for more reasonable prices. 

The Steps of Adopting Reference-Based Pricing 

Much like any shift in operations, changing to reference-based pricing is a process. However, it isn’t a necessarily difficult one. 

Deciding RBP is the Way to Go

If switching your entire health plan seems like too much of a commitment, you can still use reference-based pricing as an add-on or wraparound solution that works with your current health insurance plan. This way, you can experience the benefits of claim repricing before you decide to take full advantage of a non-traditional health insurance plan.

The first step in switching to a reference-based model is recognizing that a self-insured healthcare plan offers a better alternative to traditional private insurance coverage. While historically, this type of coverage has been used by larger companies, it is becoming increasingly common in small businesses as well. Furthermore, the increase in adopting reference-based pricing coincides with a decline in traditional insurance plans.

While making such a drastic change to an integral part of your organization may feel risky, it’s worth remembering the common successes so many employers enjoy with a reference-based pricing model. It doesn’t just save you money, it also increases transparency for billing practices and offers greater access to higher-quality care. All of these features can lead to even greater employee health and satisfaction. 

How to Utilize RBP 

While many employers and employees are accustomed to having medical services rendered through a private insurance network, using reference-based pricing is a bit different, but no less convenient. 

Picking a Provider

When using a reference-based pricing model for coverage, services may be performed either within or outside a traditional network. While it doesn’t provide open access to providers, reference-based pricing does reduce the risk of excessive claim costs.

Claims Repricing

Because reference-based pricing is a pre-payment healthcare solution, it facilitates negotiations for lower prices from an informed position. Typically, when a service is performed and the patient is billed, the established (hospital) reference point for the service is utilized to reprice the claim directly with the provider.

As you can see, reference-based pricing allows more flexibility as well as greater access to better medical coverage at reasonable prices. In addition, all of these advantages come without a private insurance company acting as a middleman who pockets their own share of provider payments.

While reference-based pricing could be the best way to increase employee satisfaction while also seeing improvements in your bottom line, it’s essential to make sure you have expert guidance to maximize the benefits.

How 6 Degrees Health Can Help

Adding a reference-based pricing solution can help your organization see huge gains in employee productivity and profitability. However, it’s important that your organization knows how to design a solution around its unique needs. 

Partnering with 6 Degrees Health can help you optimize a reference-based pricing solution for your organization so you and your employees can realize the full advantages of quality healthcare coverage. 

Our objective, data-driven approach utilizes our proprietary MediVI software to access accurate reimbursement analytics to help negotiate the lowest prices for medical services. If you’re one of the many employers looking for an antidote to arbitrary medical price-gouging, 6 Degrees Health has the expertise and technology to help you save up to 40% on your healthcare spend.

How does reference-based pricing work? Speak to a representative today to find out how switching to a reference-based pricing model can help you save big and realize the true benefits of healthcare.