It is hard to believe that Reference-Based Pricing (RBP) has been around for 15 years. We’ve watched it evolve, and the product is mature. In this post, we’ll explore the concept of Reference-Based Pricing, what it is, and how it changes the way we approach healthcare costs.
What is Reference-Based Pricing?
Reference-Based Pricing gets its name from how the contract pays providers. Provider payments are based on a reference point, and that reference point is Medicare. RBP providers negotiate up from Medicare, where insurance company networks negotiate down from a crazy retail price that no one ever pays. Carrier networks boast 55-60% savings off retail prices. It sounds great until you realize a huge discount off an artificially inflated price point has no real meaning. For comparison, RBP pricing up from Medicare settles out at 70% – 75% savings off retail.
Why Reference-Based Pricing Works?
RBP drives those savings by focusing on reducing the costs that make up 70-80% of your claims (inpatient hospital, surgical, and high-cost diagnostics and therapeutics). A couple of examples of how RBP vendors will drive savings:
- The average hospital bill from a big insurer network comes in at 241% of Medicare (RAND 2017). Most RBP vendors start at 140% of Medicare. Hospital claims make up 40% of claims on average. Think of the savings on the hospital claim segment alone.
- Specialty pharmaceuticals are the fastest-growing expense in healthcare. Pharmaceutical companies are required to cap the cost of these medications based on the income level of the patient, but large insurers don’t work with patients to obtain the price cap. RBP vendors review every specialty medication and help patients qualify for the reduced cost. Your employee has a lower out-of-pocket cost, and your claim expense is cut, sometimes to $0.
Why Will Employees Love It?
Because the focus is on high-cost, high-impact, low-frequency claims, RBP vendors try to stay out of the patient/doctor relationship. They remove networks that steer care based on contracts, and the benefits are the same for your employees no matter who they see. Your employees choose the doctor they want and keep the great In Network benefits they are used to.
How can that work? Most doctors accept Medicare, and most doctors are paid about 110% of Medicare by insurer networks. Most RBP providers offer doctors 125% of Medicare. So, the doctors in RBP get a raise.
Doctor cost is not the driver of your healthcare cost challenges. So by paying a little more on the low-cost, high-volume transactions, you get happy employees, happy doctors, and restore the patient-doctor relationship which should be the heart of healthcare.
What about Balance Billing to My Employees?
After 15 years, good RBP vendors have this problem solved. They contract with a law firm that specializes in defending patients against balance billing. The law firm services are contracted by the RBP vendor and included as part of your everyday plan administration, so there is no added cost.
If there is an issue, the law firm steps in to defend your employee. They send a cease and desist order to the provider, and the lawyer takes over the invoice negotiation. After years of negotiations, these firms have settled enough lawsuits that they have precedent settlements with most of the large providers. Plus, federal law now protects your employees from collections and harassment if they are represented by a law firm.
Keep in mind the battles are not usually with doctors. It’s the large hospital networks that tend to balance bills, and settlement pricing is frequently established from prior court cases. All your employee does is call customer service at the RBP vendor and they take over.
What are the Financial Risks for Your Company?
All RBP vendors require you to self-fund. But, self-funding has evolved greatly in the past few years. The top RBP vendors have products that operate like insurance. Four-tier rates, fixed monthly costs, and no backend liability if claims go crazy. It’s not insurance, but sure looks and feels like it. RBP products operate just like the alternate funding sold by Aetna, BCBS, Cigna, and UHC in smaller markets. So you can take as much or as little risk as you want. Since the start of Obamacare in 2015, the under 200-employee market segment has gone from 13% to 40% self-funded (KFF Annual Survey 2014 & 2022). The financial product evolution over the past decade makes RBP accessible to all sizes while controlling the financial risks.