Page 31 - 2020 Peel & Holland Benchmarking Survey Results

WESTERN KENTUCKY EMPL OY EE BENEFIT S
BENCHMARKING SURVEY
HEALTH PLAN FUNDING 2017

COST-SAVING TREND

Reference-Based Pricing (RBP)

The U.S. healthcare system is notorious for its lack of price transparency. Some self-insured employers are
responding by using reference-based pricing (RBP) with doctors and hospitals—in effect, setting their own
prices for healthcare services.
RBP is an emerging cost-containment strategy that pays doctors, labs, clinics and hospitals a percentage of
an established benchmark. Most often, the reimbursement rate is 120 to 300 percent of Medicare pricing for
a given service, based on what’s reasonable in terms of the local healthcare market.
A May 2019 report by the RAND Corp., a research think tank, found that prices paid to hospitals by private
health plans averaged 241 percent of what Medicare would have paid, with wide variation in prices among
states. Based on their findings, the RAND authors suggested that employers design coverage using
“contracts based on a multiple of Medicare or other prospective case rates.”
Unlike traditional Preferred Provider Organization (PPO) coverage, an RBP approach typically has no in- and
out-of-network payment tiers. Plan members can go anywhere they choose for service, and the plan will pay
the provider a fair and reasonable amount based off of Medicare plus a percentage, which is a profitable
arrangement for a physician, hospital or other facility. RBP often reduces employers’ medical claims
spending by 20 to 30 percent.

RISK | Employers can negotiate contracts with physician practices and hospitals to accept RBP for services.
Absent a contract, doctors and facilities will still be paid RBP rates, but these providers may then “balance
bill” the patient for what the provider considers the remainder of its fee. Providers can deny care, especially
when the number of patients utilizing RBP hits critical mass.
SHRM, Employers Cut Health Plan Costs with Reference-Based Pricing, May 2019

$100,000
COMPARISON
$90,000
$90,000 of payments to a
provider for a typical
$80,000 high-cost medical
claim
$70,000

$60,000

$50,000
$45,000
$40,000

$30,000 $28,920
This total is 241%
$20,000 of the Medicare
$12,000 Average price.
This percentage
$10,000 is a national
average from the
RAND Corp.
$0
Billed to Insurance Employer Cost Average Medicare Average Reference-Based Pricing
with a 50% PPO
Network Discount

PEEL & HOLLAND | 2020 Western Kentucky Employee Benefits Benchmarking Survey Results 29