Reference-based pricing (RBP) healthcare is a pricing methodology that sets a fair and reasonable price for medical services based on a reference point, such as Medicare rates, rather than a percentage of the provider’s billed charges. Unlike traditional preferred provider organization (PPO) plans, RBP healthcare does not rely on a network of contracted providers. The plan pays the same amount for the same service, regardless of which provider the member chooses.
How Does RBP Healthcare Work?
RBP healthcare works by establishing a reference price for each medical service, which is usually derived from Medicare rates plus a margin. Medicare rates are widely accepted as a benchmark for the cost of care, as they reflect the complexity, quality, and value of the service. The reference price is then used as the basis for reimbursing providers for their services.
When a member receives a medical service, the provider submits a claim to the plan administrator, who pays the provider the reference price for that service. If the provider’s billed charge is higher than the reference price, the provider may balance bill the member for the difference. However, many providers accept the reference price as payment in full, as it covers their costs and provides a reasonable profit margin. In some cases, the plan administrator may negotiate with the provider on behalf of the member to reduce or waive the balance bill.
What are the Benefits of RBP Healthcare?
RBP healthcare offers several benefits for employers and members who want to lower their healthcare costs and improve their healthcare quality, such as:
- Reduced Health Care Costs: RBP healthcare can reduce healthcare costs by up to 20%, according to some studies. This is because RBP healthcare eliminates the inflated and arbitrary prices that some providers charge, which can vary widely for the same service in the same area. RBP healthcare also reduces the administrative fees and taxes that are associated with PPO plans, such as network access fees, state premium taxes, and Affordable Care Act (ACA) fees.
- Fair and Equal Compensation: RBP healthcare ensures that providers are paid fairly and equally for the same service, regardless of their location, reputation, or market power. This eliminates the wide variations in the cost of care that exist under PPO plans, where some providers may receive higher or lower reimbursements than others for the same service. RBP healthcare also encourages providers to deliver high-quality and efficient care, as they are rewarded based on the value of their service rather than the volume of their charges.
- Increased Transparency and Empowerment: RBP healthcare increases transparency and empowerment for members by giving them access to their own claims data and healthcare utilization reports. Members can see how much their plan pays for each service and how much they may owe if they choose a provider who charges more than the reference price. Members can also compare prices and quality among different providers and make informed decisions about their healthcare choices.
Is RBP Healthcare Right for Your Business?
RBP healthcare is an attractive option for employers who want to save money and offer better health benefits to their employees. However, it may not be suitable for every business. Some factors to consider before choosing RBP healthcare are:
- Your business size and employee population: RBP healthcare is typically designed for small to medium-sized employers with 3 to 199 employees who have stable and predictable claims experience. Larger employers may find more savings and flexibility with a fully self-funded plan.
- Your risk tolerance and cash flow: RBP healthcare reduces but does not eliminate the risk of health care spending. There is still a possibility that your employees may incur high balance bills from some providers who charge more than the reference price. You also need to have sufficient cash flow to cover your monthly payments and any unexpected expenses that may arise.
- Your health care goals and needs: RBP healthcare offers more control and transparency over your health care costs and data than a PPO plan, but less than a fully self-funded plan. You may have limited choices in terms of benefit design and customization. You also need to comply with the rules and regulations of your plan administrator and stop-loss insurer.
If you are interested in learning more about RBP healthcare or finding out if it is right for your business, contact us today.