Tap Into the Cost-Cutting Power of Reference-Based Pricing

Tap Into the Cost-Cutting Power of Reference-Based Pricing

By 2028, health care costs are expected to climb to $18,000 per person, according to a study conducted by the Peterson Center on Healthcare. To combat these skyrocketing expenses, employers must take every opportunity to contain costs without sacrificing the quality of their benefits offerings.

One strategy is to employ reference-based pricing (RBP), which enables employers to set limits on certain medical services, shifting the cost-analysis burden onto employees.

How It Reference-Based Pricing Works

RBP works by setting spending limits on certain procedures or services. This means that employees would only be covered up to the established limit and would have to pay the cost difference out of pocket. Limits should only be set on “shoppable” services, such as prescriptions, lab tests, joint replacements, and other services that offer lower-cost options with comparable quality and allow employees time to make informed decisions.

When establishing the best limits for procedures, employers typically work with a third-party vendor that will help conduct market research and negotiate deals with providers. Selecting a reliable vendor is crucial for securing the best prices possible for your employees.

RBP is most effective when applied to procedures with fluctuating costs. For example, colonoscopies may range from $400 to $6,000, depending on the physician. In this case, an employer using RBP might set the spending limit to the median price of the procedure, based on market findings. If an employee uses a health facility that charges above the spending limit for a specific procedure, they’ll have to cover the difference out of pocket.

Why Consider RBP?

The most attractive benefit of RBP is that it can help employers reduce their health care expenses. While health coverage usually extends to any in-network procedure, regardless of cost, RBP allows employers to avoid the risk of paying exorbitant prices for services that could be done more cost-effectively.

By setting a limit on certain procedures, employers are also empowering employees to take charge of their health care decisions. Employees must consider cost, in addition to quality, when choosing where to have a procedure, and that will likely require research. By promoting employee engagement in health care decision-making, you can help to educate employees while lowering overall health costs.

Potential Pitfalls of RBP

While RBP has its benefits, there are potential pitfalls that employers must keep in mind.

The complexity of this model makes implementation particularly challenging. Employers must choose a vendor that will ensure a smooth transition into RBP, or risk disrupting highly utilized providers. Selecting an inexperienced vendor can also lead to RBP limits that are too low for the services your employees need, making your plans unaffordable for your workforce.

You may be tempted to avoid using a third-party vendor altogether, but this could leave you vulnerable to providers attempting to balance bill. Ultimately, it’s important to think carefully about RBP and take the vendor selection process seriously if you pursue this model.

The RBP model is unique in its ability to reduce costs while simultaneously promoting employee health care literacy. However, this isn’t the right strategy for every employer. Find out if RBP is the right fit for your organization by connecting with our Health Innovations experts today.

Tap Into the Cost-Cutting Power of Reference-Based Pricing https://www.cbiz.com/Portals/0/Images/article_thumbs/Money Growing and Rising_0_0_820665474.jpg?ver=2vvNmscr9HAljBpUCxVk8w%3d%3dWe discuss reference-based pricing (RBP), which enables employers to shift the cost-analysis burden onto employees. 2022-05-18T16:00:00-05:00By 2028, health care costs are expected to climb to $18,000 per person, according to a study conducted by the Peterson Center on Healthcare. To combat these skyrocketing expenses, employers must take every opportunity to contain costs without sacrificing the quality of their benefits offerings.Employee ManagementEmployee BenefitsYes