Reference based pricing

To RBP or Not to RBP

What Is RBP?

RBP stands for reference-based pricing, a tool that many employers today are using to cut their health insurance costs.The most common concern I hear from employers about RPB is that providers won’t accept reference based plans, or that the employee will have a large balance bill. Neither of these things are accurate if RBP is implemented correctly. We don’t use it everywhere and it’s not right for everyone;like most things, no one tool works for every employer, but RBP might be something that you want to consider.

At its core, RBP is just a way to pay your claims and is not very different from negotiating your office supplies,leases,or any of your costs of goods sold. Benefits are never just about benefits, they’re about employee engagement, recruitment, retention, and cost-containment. These are all competing interests in a health insurance plan and sometimes they compete pretty aggressively with one another.


Why RBP?

There are a number of benefits to using RBP, including the elimination of the network. Often, one of the most overlooked benefits of reference based pricing is the ability to steer your employees to the highest quality care and to negotiate the price ahead of time. If one of your employees needs a surgical procedure, has just received a cancer diagnosis, has a back issue, or they have an ongoing chronic condition, wouldn’t you want them to receive the highest quality care? They’re your employee and they’re helping you run your business.You need your employees to be productive and healthy, and you can help them to be productive and healthy.

We build plans every day that fuse low-cost and high-quality care. On one of the things that always surprises people the most is that the highest quality care is typically in the bottom quartile of cost. Now, most people don’t have any way to access that information, but we do and we encourage high quality care for two reasons.Most importantly, it’s just the right thing to do. But also,it costs less and it helps you contain the costs in your plan.

For example, if you’re a mid to larger size employer and have two or three knee replacements in one year, one might cost $40,000,one $48,000,and another $62,000. What explains the price difference? Well, every facility and provider is charging a different price. You can control some of that with RBP. Instead of paying three different prices for those knee replacements, you could be paying $36,000 for each one, plus have them performed by the highest quality provider in the geographic area in which you stipulate.

In fact,Walmart does this. Their primary concern is the quality of the service. They send their employees to Centers of Excellence for every procedure they have. They have negotiated a fixed cost with an extremely high quality provider and they have also negotiated the fees with the facility. They have somebody pick the patient and their companion up at the airport, they take care of the companion’s needs for the few days that they’re there,and then both of them go home together. It is an incredibly cost-effective solution and they’re ensuring that their employees receive high quality care in an environment that is designed to ensure that the procedure goes well and can manage anything that doesn’t.

How Can I Set Up an RBP Plan?

1. Adjust SPD.  To set up your own RBP plan, you will first need toadjust your summary plan description (SPD).

2. Set Your Plan Reimbursement Level. Essentially, if Medicare is reimbursing X, we are going to reimburse Y. At its core, that is what reference based pricing is. The reference point is what Medicare pays for a particular service. In the beginning, an RBP plan should be set a bit higher than you may like… maybe 200% of Medicare. As you get more comfortable and as your providers get more comfortable with you, you might be able to ratchet that down some. I would caution you against setting it at 120,130% of Medicare, however, as you will have a fair number of providers that push back.

Let’s say that you have $500,000 worth of claims. If these are repriced at 150, 175, or 200% of Medicare, you can see what you should actually be paying for different kinds of services and how that will stabilize your costs. And one other little secret… you don’t have to have the same reimbursement level for hospitals as you do for doctors.

3. Administration & Education. Finally, you will need a high quality TPA, somebody familiar with administering RBP plans and you will need to ensure that your employees understand how to use it. For example, we often get asked about balance bills. Many employees, even if they’re fully insured with the big carriers, like Blue Cross, United, Cigna, Aetna, or Humana, they still get a balance bill if they go through an out-of-network facility. Make sure your people know how to handle a balance bill… and yes, procedures should be built into the plan to resolve the problem.

I have a client that accidentally went to an out-of-network facility and she received a balance bill for $11,000 even though she’s on a fully-insured plan. This happens quite frequently, and there is very little recourse depending on what state you’re in.

As such, it’s incredibly important that you communicate with your employees about what they need to do when they have a procedure. Fortunately, there are excellent tools to help with that. Not to mention, your plan administrator can be incredibly helpful with this.


When implemented effectively, RBP will not only save you plan dollars, but you can also steer your employees to the highest quality care.While saving money is important, the number one concern that I hear is that employees don’t have access to high quality care despite paying too much for it. Reference based pricing can be a tool for you to lower your costs, lower your employees’costs, and get them access to to high quality care.


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