Why Should You Consider Reference Based Pricing?

By: dianeadsmith

While reference-based pricing is gaining popularity as an effective tool to help control the increasing cost of healthcare, the cost of healthcare is not an easy riddle to solve and each solution comes with a unique challenge.

And reference-based pricing is no exception because reference-based pricing plans comes with compliance challenges when it comes to Affordable Care ACT’S maximum cost sharing rules on out of pocket limits. Basically, reference based pricing programs are designed to reimburse healthcare providers a maximum price for every service or procedure. And the maximum price is called the ‘reference price’.

Today, more and more businesses are adopting reference based pricing as they know that it is a viable, sustainable option in today’s healthcare market. Moreover, reference based pricing empower employers who look to stop the cost-shifting trend:

Employer’s in all healthcare expenditure is reduced

When the expenditures on health plan is reduced significantly, employers can look to reinvest the savings into their businesses. This exemplifies hiring more personnel or investing in other business growth objectives. On an average, businesses can save around 30 % of their total healthcare costs in the very first year, which is an amount that can help transmogrify a business’ bottom line.


Reduced out of pockets for Employees

Businesses who have adopted a reference-based pricing solution can effectively use their savings to invest in best benefit packages for their employees. While the most considerable effect on healthcare coverage is reduced out of pockets, the overall benefit plans can also be enhanced with more programs and services, thus enabling employers to hire top talent much more easily.


Reference Based Pricing is both for Employers and Employees

With healthcare costs skyrocketing, it is easy for employers to push costs down to employees. Moreover, it is significant for businesses to fully understand the effect of their health plan decisions on their employees and consider cost-containment solutions that are sustainable and offer long-term value for everyone.


Factors to Consider when going for Reference-Based Pricing

If you are wondering whether reference-based pricing is right for your healthcare cost reduction program, you need to consider the following points:


For what Reference- Based Pricing is used for?

If reference-based pricing is only used for high-cost claims, like inpatient or outpatient procedures, look for reference-based pricing vendors that can be sued for professional provider services. So you must evaluate how the reference-based pricing model can impact your employees.


Type of reimbursement model you will use

There are two models known as defined contribution and defined contribution with negotiation.  When we talk about defined contribution, employers work closely with a reference-based pricing vendor to set fixed prices on services. However, in defined contribution with negotiation, a third party administrator sets the prices but will negotiate the balance bills, until both parties agree.


Role of Administrative Model

Most of the models are based on medicare or CMS reimbursement, with a percentage. A higher margin means more providers will be likely to accept the defined payment as payment in full, without thinking of the balance billing.

Reference-based pricing is neither new nor unproven. For making your reference-based pricing successful, ongoing employee education and communication needs to be a priority. Moreover, employees must be provided with tools like cost transparency databases, in order to help them understand how exactly the reference-based pricing strategy works. Reference-based pricing models will continue to grow in popularity especially as healthcare costs continue to skyrocket. Moreover, employers considering reference-based pricing program should ask their claim administrators to illustrate as to how the plan meets the required criteria of the business.  In addition to it, employers should also consult their legal counsellors in order to consider the compliance risks and ensure whether the steps taken by the claim administrator might be deemed to meet each of the business criteria. Therefore, reference-based pricing makes sense and helps in controlling costs.


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