The Phia Group has long championed reference-based pricing, otherwise known as “RBP”, as an effective healthcare cost containment mechanism to reduce prices to billed medical services. Whereas under many traditional healthcare reimbursement models, hospitals and other healthcare facilities establish their own prices for services rendered – without a benchmark and irrespective of the actual costs – the RBP methodology leverages a database of prices (i.e., market rates, the provider’s reported costs, or most often Medicare reimbursement rates) to establish a fresh point of reference from which plans can negotiate more equitable prices from providers.
Under most RBP plans, a self-insured health plan will pay an amount equaling the Medicare reimbursement rate plus a reasonable surcharge. In contrast, membership on a PPO plan often means paying a discount off a much higher inflated chargemaster price. While RBP is not without its potential drawbacks, the most draconian being the prospect of a participant receiving a devastating balance bill, the RBP methodology has been a boon to self-funded health plans nationwide for a myriad of reasons, several of which are outlined below.
Mitigating Healthcare Costs with Reference-Based Pricing
Unfortunately, for participants of employer-sponsored health plans, along with their employers, providers are often at liberty to charge arbitrarily exorbitant rates, resulting in upcharges that significantly – or in some cases exponentially -- surpass what Medicare expends for the very same services. Thus, patients are often left encumbered by staggering bills, unaware that they could have accessed the exact same services for a considerably lower price.
But the advent of RBP, grounded in an objective, data-based approach, empowers self-funded employers to have greater autonomy in deciding what they will pay and avoid unnecessary procedural costs. Subsequently, employers aren’t saddled with inflated operating costs to insure their workforce, while employees – who naturally become more inclined to stay at their jobs -- and their covered dependents spend less on out-of-pocket healthcare expenses. (**As previously mentioned, RBP does carry with it the heightened risk of patients unexpectedly getting balance billed if the established reference price falls well below the actual provider charges – however, the No Surprises Act (NSA) does prevent certain claims from being balance billed.**) Further, the benefits of reference-based pricing don’t just trickle down to members who pay lower plan contributions but also to stop-loss carriers who have fewer claims that reach the specific or aggregate deductible, since the plan’s payment levels are lower.
Increases Transparency for Billing Practices
In the world of traditional, fully-insured health plans, the insurance carrier’s claims rates – the amount the carrier will reimburse the provider for medical services – are negotiated between the two parties in private. Unbeknownst to participants on the healthcare plan (and perhaps even to some plan sponsors), the cost of the claim can be marked up to include administrative managerial expenses and add-on premiums. Meanwhile, with such scarce pricing transparency available, employers often struggle to effectively budget for healthcare expenditures that could have a profound impact on their bottom line.
Conversely, RBP does facilitate heightened transparency as there are clearly defined metrics, tethered to established benchmarks, available for employers and employees to comprehend the costs of care. Healthcare facilities may charge unreasonably high prices under the guise of convoluted cost structures and hidden fees but the reimbursement amount isn’t beholden to the charges. And ultimately, plan participants can become engaged consumers of healthcare who are not unknowingly susceptible to paying at a rate based on an inflated chargemaster price.
Plan Participants Become More Knowledgeable
It is human nature to spend an excessive amount of time shopping around for a life-changing purchase such as a new house or car. We do extensive market research, compare prices, analyze our options ad nauseum. But traditionally, consumers of healthcare, many of whom don’t realize that’s what they are – consumers, don’t exert themselves in such a painstaking fashion. Because RBP provides empirically-backed, easily comprehensible information delineating pricing options and quality metrics, patients are enabled to make educated decisions about their impending healthcare or at the very least develop a sense of agency concerning one of the most impactful events in their lives. Even for highly complex procedures and surgeries that simply don’t have a cost-effective option, patients can learn about the underlying costs associated with the service. For patients with high deductibles and out-of-pocket maximums who will eventually bear the (steep) financial burden, such knowledge can at least provide a morsel of reassurance that they are not getting exploited.
Greater Flexibility for Accessing Higher-Quality Care
At its core, RBP is a flexible pricing methodology engineered to be adaptable for disparate geographic regions and healthcare markets. For plan participants, such heightened flexibility translates to more options for selecting healthcare practitioners and medical facilities as they are no longer restricted to a narrow network of providers. In other words, they can have unfettered access to out-of-network providers who would otherwise have been prohibitively expensive. Likewise, for plan sponsors, there are new opportunities for partnering with a wider range of vendors (i.e., pharmaceutical, cost containment, disease management) so that participants can reap the benefits of custom-designed programs that are fueled by high-quality care.
Providers Are Incentivized to Lower Their Prices
In a sense, the growing popularity of RBP puts pressure on providers to charge more reasonable prices for their services. With patients having far greater knowledge about how to pursue cost-effective options that yield optimal outcomes, providers are left with no choice but to reduce prices. Oftentimes, healthcare providers in the very same geographic region can charge drastically different prices for a given service. With RBP, providers are held more accountable because the prices of their services are made public; thus, if one provider is charging five times more than a competitor for performing the same service, the former will naturally be incentivized to lower the price. So essentially, RBP can organically serve as a catalyst for regulating provider behavior, ensuring there is a healthy amount of competition in the marketplace.
