Reference-based pricing has generated a lot of interest among employee benefits professionals this year. The question is: What is reference-based pricing and how might it impact your organization’s health plan? Today’s lookback blog, “Reference-Based Pricing: What Employees Need to Know,” helps explain how reference-based pricing works.
Reference-based pricing generally refers to prices that don’t use a traditional insurance carrier or rented network that negotiates discounts from provider billed charges. That traditional discount results in the ‘contracted-rate’ (also called the ‘allowed amount’) the health plan pays the provider.
Instead, reference-based pricing sets provider reimbursement on a percentage of what Medicare would pay the provider (e.g. 150 percent of Medicare reimbursement). In this case, the pricing is set above Medicare reimbursement and typically ranges from 120 percent to 150 percent of Medicare.
How Reference-Based Pricing Works
For an example, an echocardiogram is a common outpatient or office-based ultrasound of the heart that produces a ‘movie’ of the heart, similar to how ultrasounds are used on pregnant women. Cardiologists use echocardiograms to diagnose heart valve problems and determine whether a person’s heart has difficulty pumping properly. The procedure is painless and takes about 20 minutes for a technician to perform and takes about 5 minutes for the cardiologist to interpret the images.
A hospital might bill $2,000 for the echocardiogram. The insurance network may have negotiated a 50 percent discount, so the final contracted-rate (i.e. allowed amount) would be $1,000. That $1,000 might potentially be paid three ways:
- Paid by the patient, if the patient hasn’t met his/her deductible
- One part might be paid by the patient and the other part paid by the health plan, if the patient is in the ‘co-insurance portion’ of his/her plan design
- The health plan might pay 100 percent of the bill, if the patient has reached his/her out-of-pocket max