Why the Buzz About Referenced Based Pricing? 

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May 21 2020

Reference Based Pricing (RBP) isn’t new, but it’s garnering increased interest given the mounting financial pressures faced by employers due to the COVID-19 pandemic. RBP establishes a set reimbursement rate for medical services, most commonly expressed as a percent of the Medicare fee schedule. With commercial plans’ contracted fee-for-service rates ranging from 150-400% of Medicare reimbursement, setting a reference price at the low end of the range (150% of Medicare) is likely to produce significant savings.

RBP pricing takes this approach and operates outside the bounds of underlying provider contractual agreements. When faced with an RBP established fee, most providers will accept payment. However, some will balance bill the member and pursue collections or even litigation if the member doesn’t pay. For this reason, relatively few companies have pursued RBP despite the promised cost savings.

In the post-COVID environment, more employers may be willing to give RBP a look. Typically, fewer than 10% of claims lead to a balance bill, but when it does it is critical that the RBP vendor provides adequate support to the member throughout the process. This can range from customer advocacy all the way to legal assistance. There are also several potential compliance issues related to RBP plans, which should be vetted prior to implementation. Finally, while measurable cost savings can be realized, it is important to model possible offsets, whether it be program costs, effect on PBM rebates, stop-loss issues, and so on.

How do you implement an RBP plan?

An RBP plan is implemented by a combination of two vendors working in concert:

  • The RBP vendor establishes the reference price, supports members as they navigate the plan and handles provider push back; in some cases negotiating with providers to attempt to resolve a balance bill issue
  • A TPA handles broader member services aspects of the plan, administers the fee schedule and administers provider payments

In evaluating RBP, know your options

Companies evaluating an RBP plan should consider their options:

  • The RBP payment methodology can be applied either to all claims or to a subset of claims (e.g. facility only), in which case a “wrap network” can be deployed to govern payment for non-RBP services.
  • The RBP plan be offered as a full replacement of existing plans, or alongside existing plan options
  • RBP benefit design can be set to compare favorably with other plan options to encourage enrollment into the RBP plan
  • The reference price – as a percent of Medicare – can be set higher (to reduce the amount of balance billing) or lower (to maximize savings).

If you’re facing ongoing and heightened cost challenges – and who isn’t? – it may be worth undertaking a RBP financial analysis to determine a realistic savings projection for your organization. Cost management is here for the long-term, and there’s no time like the present to consider disruptive strategies for saving.

To learn more about reference based pricing watch the replay to our recent webcast – Why All the Buzz About Reference Based Pricing?

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