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Reference Based Health Care Pricing
Bret Brummitt10/9/23 6:50 PM3 min read

Reference Based Health Care Pricing

Healthcare often remains a mysterious cost for many of us, despite tools like reference based health care pricing. We’ll explain reference based pricing later. The current market puts patients in a situation where they are in the dark about expenses until after the appointment or procedure. This lack of clarity has two significant impacts on our behavior:

1. We may shy away from essential services because we’re uncertain about our ability to afford them.

2. Alternatively, we might simply accept whatever price we’re presented with.  This leaves us feeling like pushovers with less money in our wallet.

But What About Transparency Tools?

Most insurance plans offer some form of a transparency tool, often known as the cost estimator. This tool typically requires you to register on your insurer’s website.  Then, input the type of service you anticipate needing, choosing from a list of possible procedures without knowing the exact one required.  It may even ask for a CPT code or ICD-10 code.

However, for individuals without a healthcare background or expertise in medical billing, using these tools can be challenging. Occasionally, you may receive general information, such as Hospital “X” having a higher average care cost than Hospital “Y.”  For most consumers, this proves more useful than specific details.

Nevertheless, nothing beats the simplicity of calling your provider, sharing your health plan information, and waiting for a callback with the actual payment information. The drawback is that you’re at the mercy of the provider’s office.  And, we know not all healthcare facilities are diligent in their follow-up.

The World of Cash Pay…

Cosmetic surgery and gastric bypass are examples of procedures with high cost transparency.  This is because they often occur outside of insurance coverage. With these services, you can easily obtain cash pricing. However, the complexity of payment systems like PPOs, EPOs, HMOs, and ACOs, coupled with various provider contracts, makes it challenging for providers to determine their contracted rate. Coordinating these costs with your deductible or co-insurance responsibility can be equally baffling.

What If Healthcare Operated Like Cash Pay?

In the early 2000s, we had two promising “Maximum Reimbursement” health plans. But, they didn’t succeed. These plans set a maximum amount they would pay.  Then, members covered the difference, similar to an indemnity model. However, members found them inconvenient as they had to research and choose between higher or lower-cost providers. Employers were also unsure about these plans.  And, the monthly cost savings weren’t compelling enough.

Fast forward to the present.  As consumers, we’ve become more adept at navigating the cash pay route. Plans like today’s Reference Based or Cost Plus plans, with maximum reimbursement structures, are poised to play a significant role in the future of health insurance.

Reference Based Healthcare Pricing

Reference Based Pricing (RBP) is a healthcare cost containment strategy that establishes a fixed pricing point.  It is often based on Medicare rates, as a reference for medical services.  Instead of traditional fee schedules, RBP sets a maximum allowable cost for procedures or treatments. Patients are responsible for costs exceeding this reference price. This encourages cost-conscious decision-making. Reference based health care pricing offers transparency and cost control. It’s commonly used in self-funded employer health plans to lower expenses while maintaining quality care.

Cost Plus Pricing

Cost Plus Pricing is a pricing strategy where a provider determines the selling price of a medical service by adding a predetermined markup or profit margin to the actual cost. In this approach, the cost incurred in making or obtaining the item serves as the foundation, and the desired profit percentage is then added on top to arrive at the final price. It is a way to ensure profitability while covering expenses.

The Bottom Line

As more providers get creative to circumvent insurance regulations, utilize membership fees, or engage in unethical agreements to accept “insurance-only” payments, the provider contractual rate model becomes increasingly less relevant. Expect to see more options emerge with open or no provider networks, with reimbursement rates aligning with Reference Based or Cost Plus Pricing.  For example, Medicare + 20%.

These plans have the potential to save 15% of a plan’s claim cost each year, and in the world of healthcare, 15% can translate into substantial savings. It might be time to delve deeper into your claims and most frequently used providers to see if you’re ready to embrace this trailblazing approach.


Bret Brummitt

In 2019, Bret launched Generous Benefits, leveraging 20 years of experience in Employee Benefits. His mission is to transform communities through innovative benefits solutions. Bret envisions benefits beyond traditional offerings, aiming for a lasting impact by stretching, tailoring, and curating packages. He coaches insurance agencies with Q4intelligence, actively participating in communities like Health Rosetta and the Free Market Medical Association. Based in Austin, he balances his professional pursuits with running alongside Gilbert's Gazelles and playing baseball with the Austin Blue Jays.

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