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Demystifying Reference-Based Pricing (RBP): A Path to Transparent and Cost-Efficient Healthcare

Demystifying Reference-Based Pricing (RBP)

Exploring the Benefits of RBP and the Role of TPAs in Enhancing Its Success

In our complex healthcare landscape, spiraling costs and the frequent opacity of pricing models have become critical concerns for employers and patients. As the search for sustainable and transparent solutions intensifies, reference-based pricing (RBP) emerges as an innovative option. This strategy, gaining rapid traction among health plans and employers, promises cost containment and a more understandable approach to healthcare pricing. In this post, we will unravel the nuances of RBP, its distinct advantages over traditional plans, and its potential to revolutionize the healthcare payment system.

What is reference-based pricing?

Administered by third-party administrators (TPAs), RBP sets maximum medical service prices, incentivizing fair pricing and empowering patients to make informed healthcare decisions. One significant advantage of RBP is its potential for cost savings for employers and employees, achieved through clear and transparent reference prices negotiated with providers. Unlike traditional healthcare plans, RBP allows members to choose any accepting provider, setting maximum payment amounts based on benchmarks and promoting cost-effective, quality care.

Instead of negotiating with individual healthcare providers on price, RBP establishes a maximum price for a service based on a benchmark, such as the Medicare rate or the average cost in a particular geographic area. The reference price is the maximum amount the health plan will pay for a particular medical service, regardless of the provider’s charges. This price is negotiated with a provider before a service, or in the case of an unplanned visit, after.

However, to implement RBP effectively, comprehensive management and patient education are essential to mitigate potential higher out-of-pocket costs and ensure providers accept reference-based prices. If the provider charges more than the reference price, the patient may be responsible for paying the difference, though this can be negotiated through a TPA or additional vendor partner. This approach incentivizes providers to charge fair prices and helps patients make more informed decisions about their healthcare.

How does reference-based pricing (RBP) differ from traditional plans?

RBP differs from a traditional, fully funded plan in two significant ways. First, traditional plans have a designated network and offer coverage only within this network. Secondly, claims are administered for a fixed monthly cost, and the member does not know the amount covered for service upfront. Varying factors – like location and provider – can change the price of a procedure, making it hard for the member to determine their out-of-pocket expenses beforehand.

In contrast, members with an RBP plan can go to any provider who will accept their plan. RBP sets the maximum amount the plan will pay for a particular service based on the designated benchmark. RBP can help employers and insurers control healthcare spending by capping the amount paid for certain services. However, without careful management and patient education, it can also result in higher out-of-pocket costs for patients who seek care from providers who charge more than the plan’s maximum payment amount.

What are the benefits of reference-based pricing (RBP)?

RBP offers numerous advantages over traditional healthcare coverage. It can lead to cost savings for employers and employees by setting clear and transparent reference prices, enabling negotiation with providers for lower costs. This plan option can be customized to suit different employer and employee needs, and it incentivizes providers to offer high-quality services at competitive prices. Moreover, RBP engages employees in their healthcare decisions by empowering them with cost information and encouraging informed choices for their care. Traditional healthcare pricing models can be confusing and opaque, making it difficult for employees to understand what they are paying for and why. With RBP, the reference price is clear, and employees can see exactly what portion of the cost they are responsible for.

What questions should I ask before considering reference-based pricing (RBP)?

Before transitioning to RBP, a health plan administrator must carefully assess several crucial factors. First, they need to ensure the adequacy of their provider network to support RBP and whether enough providers will accept the reference-based prices. Transparent member education is essential, enabling plan participants to comprehend their financial responsibilities and navigate the new pricing model effectively, considering potential balance billing risks. Engaging healthcare providers in open communication becomes paramount, addressing their concerns, negotiating fair rates, and encouraging participation in the RBP model. The health plan must establish a reliable process for determining reference prices, basing them on regional averages, Medicare rates, or other suitable benchmarks, and regularly updating them as needed.

Alongside pricing, the plan must develop strategies to mitigate balance billing issues and facilitate dispute resolution and patient advocacy. Robust data and analytics capabilities are necessary for monitoring and evaluating the RBP model’s performance, and tracking cost savings, member satisfaction, and health outcomes. Legal and regulatory implications must also be considered to ensure compliance with state laws and existing provider contracts. Moreover, the impact on plan members, particularly those with chronic conditions or ongoing medical needs, should be considered to ensure continued access to necessary care at an affordable cost.

How does a third-party administrator enhance my reference-based pricing plan (RBP)?

Incorporating a TPA partnership in RBP can further enhance its effectiveness. TPAs can facilitate provider negotiations, educate plan members on navigating the new pricing model, and ensure a smooth transition. Moreover, TPAs offer critical data and analytics capabilities to monitor performance, track cost savings, and enhance member satisfaction and health outcomes. By addressing key considerations, such as network adequacy, legal compliance, and member impact, alongside the TPA partnership, health plans can successfully adopt RBP, promoting cost containment and improved healthcare decision-making.

As part of a comprehensive approach, the health plan should integrate additional cost containment strategies, promoting preventive care, managing chronic conditions, and improving population health. Benchmarking and studying RBP implementations in other organizations or industries, with the assistance of a TPA, will help the plan identify best practices to ensure a successful and seamless transition. Addressing these multifaceted considerations allows the health plan administrator to make informed decisions and successfully implement RBP, benefiting plan members and stakeholders.

Does reference-based pricing really work?

Recent findings from a client’s collaboration with HealthComp underscore RBP’s potential for substantial savings, demonstrating its efficacy in controlling costs and enhancing price transparency.

In January 2023, a new client decided to collaborate with HealthComp, leading to a range of noteworthy findings in their projection study. If this client had remained with their initial administrator and network, they would have faced a per-employee-per-month (PEPM) cost of $670 for that year, calculated based on their historical data, with an added 6% to account for annual medical cost inflation. In contrast, HealthComp introduced a dual-option RBP strategy and forecasted a blended PEPM of $482.35 for the client’s initial 3,851 staff members. However, by June 2023, the company’s workforce grew to 4,180 employees, and the data from Quarter Two revealed a blended PEPM of $485.21. Impressively, this figure was just 0.6% higher than HealthComp’s initial savings estimate. It’s crucial to note that while Q1 data didn’t include the run-out from the previous administrator, the Q2 data was comprehensive, capturing details up to three months after the quarter’s conclusion.

As the healthcare landscape continues to evolve, strategies like RBP stand out as innovative solutions to the challenge of rising costs and lack of transparency. By emphasizing clarity, fair pricing, and informed patient choice, RBP can usher in a new era of healthcare that benefits all stakeholders—employers, insurers, providers, and, most importantly, patients. With the correct implementation, support from TPAs, and ongoing education, RBP has the potential to significantly reshape and improve the way healthcare is accessed and paid for, marking a promising step towards a more sustainable and transparent healthcare future.

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