What is Reference Based
What is Reference Based
Learn about what reference based pricing is, and what it isn’t
Learn about what reference based pricing is, and what it is not.
What is Reference Based Pricing (RBP)?
Reference Based Pricing (RBP) is a financing strategy for employer health plans that affords three main benefits to a company:
- Significantly reduces claim costs.
- Allows plan members to freely choose between providers and facilities rather than being restricted by a network.
- Puts employers in the driver’s seat when it comes to physician/facility charges by anchoring them and providing billing transparency.
Watch John Get Fired Up About Reference Based Pricing
Here’s how it works. Rather than relying on unknowable, unverifiable discounts from a Preferred Provider Organization (PPO) network, an RBP strategy establishes a plan reimbursement rate that is tied closely to the Medicare rate. The referenced price is based off of Medicare because Medicare is is a well-established, fair, and reliable benchmark for costs, and is commonly accepted by most providers. Plans that use RBP reimburse physicians and hospitals at values ranging from 120-200% of the Medicare rate, which are higher than what healthcare providers are reimbursed from insurance networks. That means that physicians and facilities are open to accepting an RBP reimbursement strategy, particularly when they are reimbursed quickly and directly from the company RBP plan.
Here’s an example.
One of your employees needs a procedure here in Arizona. The hospital charges $60,000 for the procedure and offers a 35% discount off the billed rate through your PPO contract, resulting in the plan paying $39,000.
If the Medicare price is $12,750 for the procedure, a RBP Plan would inform the hospital that it would reimburse 140% of Medicare. This amounts to the plan paying $17,850.
That’s a savings of $39,000 – $17,850 = $21,150 for this procedure!
Benefits of Reference based pricing
So which benefit of reference based pricing is greater? It depends on preference. Cost control is the first benefit. True choice for plan members is the second. Reference based pricing plan members are not restricted to in-network facilities and physicians when seeking care. Instead, they can go to any facility that accepts the RBP pricing structure.
This means that plan members receive care from their own doctor rather than settling for one in-network. Similarly, employees can get a procedure from an outpatient facility. A facility with great reviews and reasonable costs rather than from an in-patient network hospital.
The company’s RBP health plan works together with employees to seek optimal care under this method. It also helps cut costs at the same time, improving your reference based pricing plan strategy year over year.
Employers who utilize RBP are not beholden to an arbitrary discount off of a hidden hospital ChargeMaster list. Their employees do not receive care today only to be hit with a surprise bill two months down the road. Instead, the plan and its members have total transparency over what charges they will be responsible for following a treatment or procedure.
Reference Based Pricing Treats Physicians Fairly
Primary care physicians (PCPs) often get the raw end of the deal when it comes to payment for their services and expertise. After BUCA and other carrier networks get involved, primary care physicians often receive reimbursements at figures at or below Medicare (90-98%). That’s pennies compared to the 250-400% that network health plans commonly pay hospitals and healthcare facilities. These numbers don’t make sense!
Doctors shouldn’t go to Medical school for 5 years and then complete 3-7 years of residency and fellowships to not get compensated fairly. And when physicians aren’t compensated well, it means they must spend less time with each patient and cannot give them the time and attention they deserve and need for quality care. The status quo mentality is “This is just how it is.” RBP changes the game.
How Reference Based Pricing Helps Physicians
It’s simple. An RBP plan includes direct contracting which helps employers cut out the health insurer intermediary and negotiate straightforward, concrete reimbursement rates with physicians. Effective RBP plans do not lease a network and dispense with classifying physicians/facilities as ‘in-network’ or ‘out-of-network.’ Instead, the plan focuses exclusively on evaluating the quality of healthcare providers and reaching a mutually-agreed upon payment amount accordingly.
John talks about why Physicians are Vital to Reference based pricing
Stop for a moment and consider what this means. RBP not only works for the company (and its employees via reduced premiums), it empowers PCPs and allows them to do their primary job of healing.
Here are the improvements an RBP plan affords physicians:
- Increased revenue (»95% of Medicare à 130-150% of Medicare)
- Timely and guaranteed payment (within 14 days)
- Ability for the physician to differentiate themselves by demonstrating qualifications and proficiency
- Far fewer administrative hurdles, no collection necessity, and patient steerage
Let’s elaborate on a couple of those points.
Reference Based Pricing Allows All Physicians to Differentiate
Imagine this hypothetical scenario. Barret Spanier, MD, is an Orthopedic Surgeon who performs surgery at an Ambulatory Surgical Center. Dr. Spanier specializes in assisting patients with musculoskeletal diseases and injuries. He’s particularly well credentialed, highly experienced in his field, and has a near perfect record for his surgeries and treatments.
But, Dr. Spanier is interacting with a patient covered under a Reference Based Pricing plan rather than a BUCA network. That means that he gets to negotiate a rate with the patient’s employer for his services. Dr. Spanier can negotiate his preferred rate based on his prior performance and expertise. However, he does not have to accept a sub-par reimbursement rate from a large health insurer.
The employer, in turn, can make a fair counteroffer knowing the plan will pay far less than it would through an insurer network. Direct communication happens and a productive relationship forms.
Dr. Spanier and the employer win, the dollars stay in the local community, and the patient receives expert care.
Timely Payments, No Collection Necessity, and Patient Steerage
Physicians run their businesses, but they are not businesspeople. They are caregivers. That means they are often ill-equipped to handle the bureaucratic nightmare of making reimbursement claims, processing paperwork, and appealing claim denials when they occur.
Reference Based Pricing eliminates physicians’ collection necessity by having the employer pay 100% of the pre-negotiated bill within 14 days of rendered services. RBP steers patients to access a trusted, local provider for no out-of-pocket cost. This provides a solution for physicians’ desire to increase market share within their community and grow their business.
Value Should Come from the Physician and the Employer
Value is not found in complex relationships of three (employer, insurer, and physician). However, it is defined by simple relationships of two between the employer and physician only. Physicians can focus on providing better, lengthier care to patients because they are compensated fairly for their expert services. RBP plans enable PCPs to do their job: healing and treating their patients.
patient advocacy in Reference Based Pricing
Sometimes a physician or facility pushes back on a RBP reimbursement strategy or attempts to balance bill the employee. Effective RBP plans contain a patient advocacy program. The program limits balance billing to a percentage that’s lower than that of most large carrier networks.
Well written RBP plans deal with these push backs swiftly providing the right guidance at the right time.
Straight forward RBP plan documents that use Medicare as a baseline are the first line of defense against push backs. Why? Because Medicare reimbursement rates are reasonable.
Everyone talks about RBP and the benefits it could offer the healthcare industry. Few companies are actually implementing the strategy. Even fewer benefits brokers and advisers are advising on it. We’ve taken RBP live with some of our clients and the results have been tremendous.
What Clients and Other Firms Say About Reference Based Pricing
Our clients are taking control of their healthcare costs and ensuring that their employees have real choices in care and are dealt with fairly. They see how the results positively effect their bottom line.
Jason Davis of the Phia Group, LLC, says he sees rates of “2% or less overall” while evaluating a multitude of RBP plans. Payer Compass has seen “less than half of 1%” balanced-bill rates for over 1 million RBP claims.
One Digital, a health care benefits advisory firm, also sees a strong future for reference based pricing in terms of letting the employer cut costs and reward the provider with a higher percentage than medicare. “This emerging trend allows employers to cap the amount paid for specific services by their health plan.” One digital also believes in developing well written RBP plans.
1. Two things worth noting: (1) Reimbursement rate to providers can value within a plan based on a provider’s experience, expertise, or treatment, but in all cases it is under the plan’s control, and (2) BUCAH healthcare insurers oftentimes reimburse providers at a rate that’s below Medicare! Small wonder why RBP reimbursement strategies look appealing to providers.
2. Balance billing refers to a provider billing a patient for the difference between the healthcare provider’s charge and the amount paid, in this case, by the RBP plan. In effect, it means the provider is not completely satisfied with the plan reimbursement amount and is seeking to make up the difference by billing the patient directly. Balance billing does not happen frequently.