Reference-based pricing (RBP) is touted as the economical alternative to Preferred Provider Organization (PPO) pricing and statistics bolster that claim.
RBP is a reimbursement methodology primarily used by self-funded employers. Instead of carriers negotiating a fee directly with a provider (usually through a PPO network), employers reimburse providers and facilities according to a reference point – such as a percentage above of Medicare rates. For instance, Allied National’s self-insured Funding Advantage Freedom Plans reimburse physicians at 125% of Medicare and facilities at 150%.
The question many people have is whether RBP really can save employers and employees a significant amount of money on group health plan premiums and member out-of-pocket costs.
Studies, such as the one shared by DirectPath indicates that employers that implement RBP plans have reduced health care costs by 5-20%.
How is that possible? Consider that the average self-insured plan using RBP pays 120% to 170% of Medicare. In comparison, RAND Corp. reported in May 2019 that the PPO prices paid to hospitals averaged 241% of what Medicare would have paid.
Advanced Benefit Consulting, an employee benefit consulting firm and health insurance agency, explains that a patient receives a 40% “top down” price in a traditional PPO. This is basically a discount from the “retail” medical bill price. However, if they have a RBP plan, they receive a “bottom up” plan, meaning that the plan starts at the Medicare rate and goes up. This is an important distinction. With a top down price, the rate could be astronomical and reducing the costs by 40% could have a negligible effect. And as retail prices go up, the value of the discounts lessen.
RBP plans save health plans money, help members save on their out-of-pocket costs and help stabilize costs for the long term by eliminating the inflation of retail medical bills.
If you’d like to learn more about Reference-based pricing, check out our other blogs!
Founded in 1970, Allied is one of the nation's oldest and most experienced third-party administrators. Allied National is a 90 Degree Benefits Company, a subsidiary of Blue Cross Blue Shield of Alabama. As the small group benefit experts, Allied works with small business employers to provide unique and affordable group health benefits.
11/16/2021 11:24:13 am
Our RBP plan has been in place since April 2019. In our region (Horry County, SC) we have a great deal of difficulty using our RBP plan. Our covered employees are told by many doctor's offices, labs, and medical facilities "... we don't or won’t accept "
11/16/2021 02:23:00 pm
Thanks for your comments. RBP faces two common problems: 1) providers sometimes don't recognize a plan that doesn't have a PPO logo on the ID card. We solve that with instructions to providers to call our Elite Support Team to explain the details of the plan. Overwhelmingly this solves acceptance; and 2) sometimes providers push back on RBP reimbursement. We're always ready to negotiate a fair reimbursement with any provider, both for current members and any future bills that might occur.
3/24/2023 11:13:39 am
I'm interested in this. Will gonna check out other blogs.
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Allied National is a 90 Degree Benefits Company, a subsidiary of Blue Cross Blue Shield of Alabama. Founded in 1970, Allied National is one of the nation's oldest and most experienced third-party administrators. We're the small group benefit experts working to provide unique and affordable group health benefits to small business employers.
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