Reference & Reasonable
Reference and Reasonable Price is a cost-containment
Strategy used to put the Health Plan in the drivers seat.
What is reference-based pricing?
Rather than relying on the hospital or facility’s over-inflated charge-master price and having a small discount,, Reference and Reasonable Pricing uses a more data-driven approach to establish a fair cost of care. To determine this more reasonable cost, we use a benchmark such as Medicare, usual and customary costs, or the actual cost reported by the facility to determine the reimbursement. With the established benchmark in place, the RBP provider reprices the claim, adding a fair profit on top of the reference price. This becomes the new amount paid to the healthcare provider.
What are the benefits of reference-based pricing?
This approach to paying employees’ medical claims reduces medical costs for people who pay for healthcare insurance: self-insured employers and their workforces. In most cases, RBP delivers significant savings that impact everyone. Employers can lower their costs over the long term and employees and their covered dependents can reduce their out-of-pocket spend.
The challenge with reference-based pricing is provider acceptance. While there is data to support high acceptance rates, there is a chance providers will bill patients for the difference between what the plan paid and what they billed.
How does reference-based pricing work?
As part of the claims review process, the RBP provider reviews and audits medical bills on their client’s behalf, and then reprices each claim using the reference-based pricing methodology. The repriced claim is sent back to the provider with payment. To determine a fair price, we use both the actual cost as reported by the facility or hospital and the Medicare reimbursement rate to determine payment to the provider. The higher of the two reference points (Medicare and actual cost) is used to ensure a fair reimbursement.
How does RBP differ from a traditional PPO pricing model?
Our approach to reference-based pricing is vastly different from the pricing used within a Preferred Provider Organization (PPO) system. With a PPO, pricing typically starts at the top with a price that originates on a facility’s chargemaster — a number that is greatly inflated, sometimes as high as 3,800%1. A traditional PPO network discount is applied to help reduce the inflated price, but the charge often remains high and unreasonable.
A 2022 RAND study2 found that U.S. hospitals are charging wildly different prices for the same services. According to the report, on average, employers are paying 224% of what Medicare pays for the same services at the same facilities. Who pays the price for that significant cost disparity between Medicare and private insurance? Employers and, ultimately, their employees in the form of higher deductibles and out-of-pocket costs.
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