What Is Reference-based Pricing

The volatility of today’s economy makes saving on internal expenses just as important to a company’s financial strategy as increasing revenue. In fact, by maximizing internal savings businesses could see an increase in their bottom lines without additional sales efforts. As one of the top sources of corporate spending, it’s time to take a serious look at healthcare costs.  

The Kaiser Family Foundation’s annual Employer Health Benefits Survey reports that the average health insurance cost to employers in 2021 was $16,253 for family coverage, an increase of four percent. As employer healthcare costs continue to rise, it’s becoming critically important to find new ways to lower expenses. 

As costs increase, many companies are moving away from traditional coverage models—in which the providers set prices—in favor of reference-based pricing. So, what is reference-based pricing? 

Read on to learn more about reference-based pricing, its advantages, and how your company can benefit.

Defining Reference-Based Pricing

Traditional healthcare models base prices on what hospitals charge, and then offer a reduction. A reference-based pricing model uses a database of aggregated prices for similar services, which essentially moves the reference point away from hospital bills as the standard metric for healthcare pricing. 

For example, when your car needs new brake pads, you can certainly pay a car dealership to perform this service. You could save a significant amount, however, by comparing the prices of a few local mechanics certified to perform the same service.  

In the same way, aggregated numbers provide an alternative reference point for pricing medical care instead of accepting the rates of hospital bills as fair. This aggregation offers consumers something closer to “informed pricing,”—akin to informed consent-–by providing insight into what other people are paying for similar procedures. 

While many consumers would like the option to compare prices for medical services, many provider contracts, as well as HIPAA laws, prevent access to the necessary data. 

It’s important to note the significant difference between hospital costs and hospital bills; the hospital’s cost for any given procedure is not the same amount that patients end up paying. Employee insurance claims reflect these upcharges, which eventually translate into increased employer costs.

Reference-based pricing (or informed pricing) offers employers a more flexible approach to claim costs, as well as a cost-containment model that negotiates a fair price for what a health plan will cover.

Who Uses Reference-Based Pricing, and Why?

Employers across a wide range of industries utilize reference-based pricing for several reasons. Some of the most important include:

• Control of healthcare spending
• Clear understanding of costs 
• Access to customizable plans for employees
• Reduced taxes compared to traditional healthcare plans
• Enhanced employee benefit programs 

Employers find reference-based pricing useful because it can help lower costs while increasing transparency. Because reference-based pricing uses an objective, data-driven foundation for healthcare spending, it offers employers an alternative to exorbitant provider-based billing. For employees, reference-based pricing means increased accessibility and affordable coverage. 

Advantages of Reference-Based Pricing 

• Built to benefit people:

Because of a lack of transparency and because consumers typically do not have the insight to keep up with price changes, providers are essentially able to charge what they want: such upcharges typically exceed what Medicare pays for the same services exponentially. Reference-based pricing disrupts this model and puts people in charge of their costs.

• Lowers costs:

Reference-based pricing models allow companies like 6 Degrees Health to compare the provider-based costs paid to hospitals and physicians against Medicare reimbursement rates to negotiate lower payments.

• Clarifies coverage:

Our healthcare system can be confusing, to say the least. A reference-based alternative can clarify true healthcare costs and prevent the excessive, inflated bills of traditional pricing models. 

How 6 Degrees Health Enables Cost Containment

6 Degrees Health does not provide healthcare coverage. Instead, we work with TPAs to help manage provider costs and access to plans for employers and employees. Just like the Rosetta Stone functioned as a key to unlock ancient languages, 6 Degrees Health helps companies translate the complex language of US healthcare and decipher which coverage plans can substantially lower healthcare spend by up to 40%. Our goal is to help companies provide access, clarity, and fairness to their employee healthcare. 

With our data-driven approach, we set care free from the constraints of traditional models by repricing and negotiating healthcare costs from a position of knowledge. With this method, we bring integrity to opaque billing practices by determining fair and reasonable payments to providers. By leveraging our clinical expertise and innovative data technology, we ensure that employers and the people they employ remain empowered in an industry often obfuscated by confusing costs and a lack of transparency in pricing.

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