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Self-Funded Employers: Is Reference Based Pricing for You?

/ June 12, 2017

 

Reference Based Pricing (RBP).  What is it? 

Reference Based Pricing (RBP) is a cost containment strategy that allows employers to set a pricing cap on what they will pay for certain medical services. According to study conducted by Aon and reported by SHRM in 2014, currently only 10% of employers use RBP, but 68% said they plan to adapt it.  RBP vendors reprice and audit claims based on Medicare rates or actual costs, plus a reasonable markup. Compared to traditional funding arrangements, this model can result in total claims savings between 15-30% depending on the local PPO market in any given area. Employers are able to save significantly on claims because they are essentially telling the healthcare system that they will not pay more than what the Medicare price dictates for certain services. As a government funded service, Medicare publicly posts what they determine are fair costs of procedures. With RBP, employers may also have the ability to save, as Stop Loss carrier rates may be discounted.

Is RBP right for you? 

RBP provides complete cost transparency which is not available in any other funding arrangement today.  The employer has more control over their rising healthcare costs and has the opportunity to build direct relationships with a healthcare system. However, it is important to choose a vendor with strong patient advocacy who will educate your employees about balance billing.  It is also important to note that not all healthcare systems will accept this type of capped insurance.

If you are considering RBP, we would recommend that you bring in a benefits consultant to do a feasibility study on alternate funding arrangements.  Depending on your goals, size, risk tolerance and budgetary constraints, this consultant will be able to help you decide what funding arrangement is right for you.

 

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