Reference-based pricing: an introduction

medical costs

Reference-based pricing is an employee benefits trend taking hold as a strategy aimed to minimize cost increases and improve health outcomes for their employees.

Here’s how reference-based pricing works: an employer, working in concert with an insurer, sets limits on how much it will reimburse a medical services provider such as a hospital or clinic for a certain medical procedure. The idea: the service provider can charge a rate that still ensures a profit for the service, but it’s not exorbitant. The rates can be tied to Medicare reimbursement, thus providing a commonly understood cost baseline.  The hospital or clinic has the benefit of having patients funneled its way, while the employer can realize some cost savings — and a little more cost certainty — regarding its medical spend. Thus, the advantage of referenced-based pricing for the employer should seem obvious.

For employees, referenced-based pricing gives them a window into the cost of medical services. For elective surgeries, they will have a chance to shop around for the right fit within their budget. And because the company will only allow spending to a certain point, employees will be incentivized to stay within those cost perimeters.

In a perfect world, reference-based pricing is a win-win for employers and employees.  Employers can reduce their health spend and exert some control over the vexing cost of medical services. Employees, meanwhile, participate in a system that gives them some choice and can help improve the firm’s bottom line. And with rising medical costs no small concern in corporate America, that’s a proposition that’s easy to get behind.

For more information on reference-based pricing, contact an employee benefits client service team member at 847-307-6100 (Deer Park, Ill.), 312-606-4800 (Chicago), 972-770-5010 (Dallas) or 405-840-3033 (Oklahoma City), or contact us via the Web. We're here to help -- and we're happy to help.