Reference-based Pricing Pros and Cons

Many companies are feeling the squeeze from the rising costs of healthcare. Employer coverage is expected to increase almost 5% in 2022 after jumping 6.3% in 2021. This means the rising cost of healthcare coverage can easily cut into a company’s profit margin. Furthermore, it can result in a lower quality of life for employees who have to shoulder the burden of higher deductibles.

These engorged prices have turned employers toward alternative forms of medical coverage in an effort to lower their costs. One of the better-known methods is reference-based pricing, a cost-containment model that questions the reference point for healthcare costs and moves it outside the framework set by traditional insurance carriers to determine more reasonable prices to pay providers. 

If you’re looking for alternate healthcare payment methods, and reference-based pricing has piqued your interest, you’re probably curious about the pros and cons of reference-based pricing. Read on to learn more.

What Is Reference-Based Pricing

Reference-based pricing uses a data-driven approach to compare the costs of services reported by physicians against Medicare reimbursement rates. This cost-containment solution uses Medicare as a benchmark to help determine fair and reasonable payments to providers, and to negotiate on your behalf.

Reference-based pricing stands in stark contrast to traditional models, in which insurance providers base prices on a reduction of a hospital’s billed charges. 

Pros and Cons of Reference-Based Pricing

Pros: 

• Increased Transparency: Because a reference-based pricing model uses a multiple of Medicare prices as a cap on what is allowable, it ensures that the pricing for services is not opaque.
• Reduces Costs: A reference-based pricing model can save you up to 40% on your healthcare spend because it limits the maximum payable amount for coverage. Instead of taking hospital charges at face value, negotiating with evidence-based data ensures that you pay the lowest possible amounts. 
• Greater Flexibility: Reference-based pricing affords more out-of-network coverage options, which allows employees to expand their services and get the best possible care.
• Better Employee Health: When employees spend less money on better health coverage, they tend to remain healthier. This can increase productivity as well as employee satisfaction, and result in greater retention.

Cons:

When it comes to reference-based pricing, there really aren’t many cons. One minor caveat is that a reference-based model may make balancing bills a little more challenging. For example, an employee may receive a bill for a service expecting it to have already been paid for by their coverage. However, an easy solution is to ensure that bills are properly balanced ahead of time. Typically, a third-party administrator (TPA) resolves balance bills, and with a reference-based pricing partner like 6 Degrees Health, employees won’t have to deal with such billing procedures. 

Another challenge is regional variation; the amount companies save by switching to a reference-based model can vary greatly, depending on your state. Geographic location impacts the cost of Medicare, which, in turn, affects the baseline used to negotiate prices. 

Although switching to a reference-based model can present challenges like any other kind of change, the potential pitfalls are easily mitigated and the benefits far outweigh any shortcomings. 

6 Degrees Health for Reference-Based Pricing

For more than 10 years, 6 Degrees Health has helped employers lower their healthcare spend significantly. Because we have access to Medicare claim data and use those prices as a baseline, we can negotiate from a position of knowledge. Additionally, our in-house, evidence-based software, offers an advantage over other healthcare companies. This means that we can ensure lower payments, and that employees only pay what is fair for quality coverage.

As a service-first cost containment company, 6 Degrees Health can help navigate complex healthcare protocols. Speak to a representative today to find out how our reference-based pricing model can help you realize the true benefits of healthcare.