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Monday, 04 June 2018 15:19

Reference Based Pricing (RBP) - Can it work?

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Reference Based Pricing (RBP) is a cost containment strategy that some larger employers have implemented to help place a cap on the cost of larger medical services.  It’s a savvy strategy that, in the past, has worked best with self-funded large employers but is gaining steam across employers of all sizes.

Reference Based Pricing aims to limit costs by providing a fixed amount for certain healthcare services. Essentially, these employers pay the hospital directly, typically a percentage above Medicare. In our existing system, hospital pricing is built on what’s called a chargemaster rate, upon which insurance companies often use to negotiate their discounts. These prices are not usually shared publicly, which begs the question “How can you judge the value of a discount if you don’t know the starting price?”

While RBP can help minimize health plan costs, in the end it may serve to shift costs to the employee in terms of “balance billing”.  Balance billing is the difference between the contracted reimbursement amount the insurer pays to the provider and the provider’s starting charge. If an employer is considering RBP, they must continually educate their members about contracted providers, specific plan designs, and lower-cost facilities. Third Party Administrators that oversee RBP plans should also provide ongoing legal assistance to help employees fight balance bills.

One of the tremendous values of RBP is that it provides members with price transparency and fair market value for their procedure.  The RBP model asks consumers to become more educated about the cost of health care, and shop around for their care just like they do when buying cars, houses, and electronics.  An example of the cost of a knee replacement outlines the large discrepancy in costs for medical services. According to Center for Improving Value in Health Care (CIVHC), this procedure can vary from $20,000 to $60,000 depending on the facility.

One can assume that the lower-cost facilities are more likely to accept the RBP pricing model than the higher-cost facilities. The startling fact is that while consumers feel that a higher-priced automobile gets them a better caliber of car, the price difference for a knee surgery most often has nothing to do with the quality of doctors and care they receive at that place of service. Consumers of health care deserve better than that.

RBP programs will most likely continue due to their substantial potential cost savings to both the employer’s health plan and their members out-of-pocket costs.

If you are interested in learning more about RFP, click on the articles below or contact us for a free consultation.

BenefitsPRO: Reference-based pricing: where do carriers go from here?

HealthJoy: What is Reference-Based Pricing?

Read 1927 times Last modified on Monday, 14 September 2020 16:02