Reference-Based Pricing Model is Disrupting Healthcare Models: Who Benefits?
Healthcare cost containment has changed forever with reference-based pricing (RBP) – although it has come with a lot of disruption. In addition to saving companies a lot of money, reference-based pricing impacts employee satisfaction.
Self-funded healthcare refers to employers taking care of their own claims rather than paying for premiums through a carrier. Third-party administrators (TPAs) and repricers work with organizations to set their own healthcare prices based on reference-based pricing. In order to reduce healthcare costs, organizations should slash delivery system margins and insurance carrier margins.
Find out how a reference-based pricing model works.
What Is Reference-Based Pricing?
Using an established benchmark, like Medicare, is one method of cost-containment in healthcare. By adding reference-based pricing to their health plan, self-insured businesses can reduce their annual costs by up to 30%. They reprice the bills according to Medicare or another benchmark like the actual cost reported by the hospital, and pay a fair markup on the changes they make. By doing so, employers and employees are able to save on healthcare expenses.
As a bottom-up approach, reference-based pricing starts with an objective metric, such as actual cost or Medicare, then adds a fair profit margin to determine provider payment. As opposed to Preferred Provider Organizations (PPOs), which begin at the top and discount inflated costs after they are compiled, RBP works on self-service pricing strategy.
How Are “Fair Prices” Set?
Based on public data provided by the Centers for Medicare & Medicaid Services Healthcare Provider Cost Reporting Information System, the repricer adds margin, arriving at a price that is somewhere between Medicare and private insurers’ reimbursements for medical services. Depending on the severity of the injury or illness, the costs may vary.
Since Medicare rates are lower than a hospital’s true cost of service, a self-insured employer may agree to pay 140% of the Medicare rate, so the hospital pays the cost, but the employer saves more money than if it paid out the excessive rate of the insurance carrier. As an example, the employer might agree to cover $28,000 for broken ankle surgery. As a result, the insured also pays less, since the employer passes on the savings to them.
In RBP, the employer doesn’t ask permission from the hospital, but rather tells the hospital what they’re willing to pay and negotiates rates with healthcare providers that they’re willing to accept-if they’re willing to provide the service. The process is a lot more disruptive and comes with trade-offs. However, this arrangement allows companies to save 20-40% on their medical expenses each year.
How Do You Implement Reference-Based Pricing?
You should first discuss self-funding with your benefits partner. Few benefits brokers know how to properly educate their clients and prepare them for the road ahead when it comes to self-funding. Make sure your plan is on the right path by finding a partner with deep expertise.
Using intelligent Medicare repricing SaaS systems like CMSPricer, an experienced TPA can customize plans and assist with negotiations using reference-based pricing.
How Can Cmspricer Help You?
CMSPricer, the SaaS-based Medicare claims repricing system, can help payers automate the calculation of rates, reduce errors, and batch process claims efficiently. It also provides easy-to-use interfaces for importing and exporting claim files for repricing. Before implementing a SaaS-based Medicare claims repricing system, check out their features.
- No set up required
- No complex contract to sign
- No PHI or data record
- Fully USA owned and operated
- Accurate SaaS claims processing
- Easy manual, batch or API claims integration
- 100% on-shore resources
Would you like to know more about how a SaaS-based Medicare claims repricing system can streamline your business? Contact us TODAY to schedule a consultation!