Reference-Based Pricing: Setting Price Limits on Healthcare

Healthcare costs continue to rise, which means employers are in search of techniques to contain or reduce their group health plan expenses. One self-funded strategy some health plan sponsors have begun to explore is reference-based pricing (RBP). RBP is basically a method for calculating payment to certain providers (i.e., hospitals) using a “reasonable fee” based on a reference point. The most common reference point is the Medicare fee schedule. For example, reimbursements for hospital or diagnostic services may be set at 150% of the Medicare fee schedule. In this manner, many consider RBP a strategy to improve healthcare provider pricing while making healthcare expenses more predictable for employees.