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Reference Based Pricing (RBP) is a health plan financing strategy that can result in significant reductions in claims cost, while providing freedom of choice of providers and complete transparency of the true costs of facilities/hospitals.
A reference based pricing model replaces the traditional facility PPO contracts with a fully transparent and sustainable pricing mechanism, by using a percentage of Medicare Rates as the payment allowance benchmark.
Reference Based Pricing reimburses providers, hospitals and other facilities based on a multiple of Medicare rates, which is known, fair and acceptable to most providers. Because the rates are generally higher than Medicare rates (most commonly 140% to 150% of Medicare), most facilities accept this pricing structure. Thus, allowing the employee to seek medical services where they choose. RBP does not require the members to choose providers from a “contracted” list. Freedom to select the providers of choice.
With the goal of decreasing their spending on employee benefits, reference based pricing is aimed to reduce claims spend for the employee.
For example, an employee may undergo an echocardiogram, a procedure that typically takes 15 to 20 minutes to complete with an additional 5 minutes to interpret the results. If the hospital bills $1,500 for the procedure and the insurance company negotiates a 40 percent discount, the final contracted-rate would be $900.