What is the Big Deal About Reference Based Pricing?

With so many insurance options available today, it can be difficult to select the right policy. A fully insured health plan versus an employer-funded health plan is one of the biggest decisions you will have to make as an employer. Traditionally, companies pay premiums to their insurance companies for fully insured plans.

Employers who operate their own self-insured (self-funded) health plans have the option to save money and have more control over their finances. Self-funded plans can price claim options using reference-based pricing.

What Exactly is Reference-Based Pricing?

Reference-based pricing is being used by many companies to reduce their spending on employee benefits. The concept of reference-based pricing (RBP) is quite revolutionary in comparison to more traditional pricing methods, which aim to negotiate a lower fee from hospitals or providers for billed charges.

Reference Based Pricing (reimbursement) vs. Reference Based Benefits

Reference Based Pricing (RBP) is also known as Reference Based Reimbursement. 

Providers receive reimbursement at a set rate determined by the employer and a third-party vendor (e.g. % of Medicare).

Members of individual plans are responsible for their own out-of-pocket insurance expenses

The provider may not accept the terms offered by the individual, in which case the individual will be charged a balance

Medical providers and employers do not have an agreement on reimbursement rates

Service is covered by the employer when they partner with their carrier/TPA (reference price)

In addition to normal insurance-related expenses, the individual is responsible for all charges over the Reference Price

Includes tools to allow employees to select care with reference pricing

Carrier support of this benefit has declined substantially

There are two approaches to reference-based pricing. A reference-based plan can either replace an existing medical insurance plan or apply to selected services only.

The replacement for select services can lower the impact on member experience given the focused universe of services in play and set the reimbursement rate for a particular service. On the other hand, the full replacement can set the reimbursement rate for services and determine the relative cost. 

As a general rule, the amount of money providers are reimbursed depends on what Medicare pays them, which is typically 120-170 percent. Compared to a traditional PPO plan, most hospitals bill approximately 350 percent of Medicare reimbursement.

What are the Benefits of Reference-Based Pricing?

In contrast with traditional funding arrangements, reference-based pricing is transparent in terms of costs. Employers choosing RBP are usually able to take control of rising healthcare costs, allowing them to avoid any negative impact on their bottom line.

Although not all healthcare systems accept capped insurance plans, such as referential pricing, it is important to make your employees aware. You may also want to hire a vendor who provides strong patient advocacy to ensure your employees better understand balance billing.

A major advantage of reference-based pricing is knowing how much a specific procedure or treatment will cost. Healthcare providers in-network can be contracted with so that their entire services will be covered as long as their physician is in-network.

Although employees are still allowed to choose out-of-network providers, they may have to pay some of the costs out of their own pockets. Employers can save on health care spending and fix stop-loss premiums when reference-based pricing is used. The employees are able to benefit from the savings.

Employers and employees alike benefit from reference-based pricing. Medical services, which can be performed more inexpensively, do not have to be expensive with RBP.

Employees can take charge of their healthcare by setting a cap on certain procedures. Choosing where to have a procedure done then requires employees to consider both price and quality, which involves research and taking responsibility for their health.


Keeping healthcare costs low can protect an employer’s budget during hard times. Since hospital rates may differ considerably, employers frequently use this pricing model in order to charge less. However, not everyone can benefit from it. Finding the right rate can be challenging. Before you commit, you should weigh the pros and cons to see if the solution may be right for your organization. 

You can avail of TPAs’ services that can price all kinds of PPS claims, including editing claims for Medicare’s reference-based pricing, through SaaS-based medicare pricing tools like CMSPricer. 

Why TPAs Prefer CMSPricer?

CMSPricer offers three volume-based tiers. Plan prices are discounted based on volume, so you get the best pricing. Selecting multiple plans will help you optimize your cost by considering your volume. Your account balance will be automatically updated following your return to CMSPricer so that you will know exactly how many claims you have left. Regardless of whether the order is entered manually or automatically, the price remains the same. You get 5 free Medicare claims when you sign up for this SaaS product!

Visit CMS Pricer at https://cmspricer.com/ for more information.