Reference Based
Pricing

Many self-funded employer groups are turning to Reference Based Pricing for cost containment purposes. This innovative method differs from traditional pricing options in that the employer determines their cost basis using "bottom-up" pricing rather than through traditional networks that negotiate a discount off the provider's artificially inflated costs. With Reference Based Pricing, the employer sets a fixed limit on the amount their plan will pay for certain health care services, typically infrequent, expensive services such as surgeries, hospital stays and CT scans.

Often times, the fixed limit is set using a percentage of the amount Medicare would pay the provider. The the following is an example of how a Reference Based Pricing fixed limit is set using Medicare for reference purposes.

Assume a plan member needs a surgery, and a hospital would expect to be paid $1,500 for it even if some insurance carriers may have a contract in place to pay less than that. The Medicare rate is $500, and the reference-based pricing plan's fixed limit is 200 percent of the Medicare price, which comes out to $1,000. The plan uses Reference Based Pricing to assign $1,000 as the cap/maximum payment