As a third-party administrator (TPA), we get asked this question all the time. We see lots of requests to build plan designs using a reference-based pricing (RBP) model.
And we get it—when you’re searching for ways to contain your health care costs, this can seem like a good idea. However, it poses a good deal of risk.
So, to help answer the popular question, “is reference-based pricing a good idea?”, we’ve pulled together information to help you understand the ins and outs. We’ve also outlined many of the risks involved. These can help you see why this is one option we think is often wise to simply leave behind.
With RBP, a standard pricing schedule is used for paying claims. The benchmark is often based on a percentage of Medicare rates.
In theory, this method allows employers to set their own price for medical services rendered, instead of going by a provider’s charge.
What are the drawbacks?
So, what are the downsides you might wonder? Applying a pricing model using RBP comes with a unique set of risks.
If providers don’t agree with RBP pricing, they may reject the rates. If this happens, members can be balance-billed for any remaining amount. This can create hefty or “surprise” bills for members, which may impose a financial hardship. Therefore, RBP pricing can be frustrating for the members.
Other pain points include:
- Possible risk of litigation, which can also have broader impacts to stop loss contract coverage.
- Not factoring in quality care, thus not directing members to high-performing providers.
- Potential for unpaid provider bills when members have to shoulder extra costs.
- Ignoring or excluding prescription drug costs.
Saying “no” is never easy
At Meritain Health®, we pride ourselves on being flexible, versatile and accommodating. On the rare occasions we have to say “no” or “we can’t”, it goes against our DNA. However, sometimes we know saying no is the best way to ensure we’re protecting our plan sponsors, members and the providers who deliver our care. An RBP model contains too much risk to the parties we care about. That’s why we’ve taken the position to discourage an RBP model. We’ve seen many examples where this model is implemented by other competitors, but then unraveled shortly after. It can save a plan money while it’s working but the pain points don’t tend to justify the savings in the end.
Choosing a less risky path
Is there a better path forward? We want to help you select the right plan design for you. This includes assisting you in choosing versatile solutions that limit your risk.
If we do get asked “is reference based pricing a good idea?”, we’d recommend avoiding these models. Instead, we believe you can lower costs by supporting healthier populations first. We’ll help you choose network designs that do this by prioritizing quality care.
This article is for informational purposes only, and is not meant as medical advice.
This material is not an offer or invitation to contract. Health benefits and health insurance plans contain exclusions and limitations. You should see your plan documents for complete description of benefits, exclusions, limitations and conditions of coverage. Plan features and availability may vary and are subject to change.