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Revolutionizing Healthcare: Reference Based Pricing

The disparity in the cost of a medical procedure from one provider to another can often seem beyond comprehension. How is it possible for someone to go to a provider on one end of town and have a procedure performed that costs 300% more than the same procedure on the other side town? How do employers get their arms around this issue and how do they address what feels like price gouging? Desperate to find solutions to increasing medical costs, employers are thinking outside of the box to find ways to address these disparities.

Reference Based Pricing (RBP) is a revolutionary strategy directly targeting this wide disparity in cost. Employers implementing this pricing concept have seen the enormous gaps in pricing for common procedures such as MRIs, colonoscopies, hip and knee replacements and are trying to bend the curve in their medical plan costs. For example, a colonoscopy in North Carolina can vary in price starting at $425 and reach up to $10,244 for the exact same service. RBP targets such price variations for more common procedures to allow the plan participant to “shop around” for care.

This emerging trend allows employers to cap the amount paid for specific services by their health plan.

To gain the maximum benefit, plan participants are responsible for researching the cost of different providers using the tools provided by the employer. This allows for price transparency. Employers who implement this model can typically maintain a broad network and carve out specific procedures and pay a set price. This price is typically a percentage of Medicare and built into the employer’s plan design as a covered benefit. The responsibility to find a provider that will accept this amount falls to the plan participant.

The savings, as a result of putting caps on pricing for certain procedures, can be significant in lowering overall costs to an employer.

There are, however, some downsides to this strategy. Due to the complexity of these plans, careful planning is necessary to allow for success. RFP models require appropriate cost transparency, educational tools and safeguards to protect members. Employers may want to consider how providers might balance billing their members for charges in excess of what the plan will pay. Employers looking to implement this strategy should find a vendor with experience and a track record in managing these programs.

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