Reference-Based Pricing


There is an up-and-coming trend in health care coverage called “reference-based pricing” and a lot of consumers are not really sure what it is. Here is some information about what it is, its potential impacts on patients, and why it is wrong for New Jerseyans.

What is Reference-Based Pricing?

Employers are looking for creative ways to save money on health insurance, and reference-based pricing is the latest strategy to promise savings. Reference-based pricing attempts to bypass traditional health insurance by eliminating the traditional provider network in order to potentially save. With reference-based pricing, employees can seek care from whichever providers they choose.

Healthcare providers are paid a set amount for a particular service, regardless of the actual cost of providing that service. The set amount is determined by the employer or payer. The amount is typically based on the Medicare reimbursement rate for the service. When a healthcare provider bills for that service, the payer remits the arbitrarily set amount. If the provider is dissatisfied with the payment, they must then bill the patient for the unpaid portion of the claim. RBP is a complex payment model that can be difficult to implement.

Why is Reference-Based Pricing Bad for New Jerseyans?

While the goal of this plan may be well-intentioned, reference-based pricing likely will have unintended negative consequences and ultimately put our overall health and well-being at risk.

  • New Jersey patients are put at financial risk if this is implemented. Most employers have opted not to implement reference-based pricing because of concern over the impact on patients. The burden of achieving cost savings lies solely on the shoulders of the patient. If the provider is not satisfied with the payment, there is nothing to stop them from billing the patient for the unpaid portion of the claim. An employee may believe that their health plan is covering the costs of medical treatment, only to get an unexpected medical bill because their employer did not pay a provider’s full rate.

    For example, let's say the reimbursement rate for a knee replacement is $10,000, but the actual cost of providing the service is $12,000. The provider would balance bill the employee an additional $2,000, which reflects the difference between the amount the provider billed and the amount the member was reimbursed by the plan.
  • Delays in Patients Getting Needed Care. Patients seeking care will have to engage in an additional layer of “shopping around” for services that were previously covered by their insurer. Instead of scheduling a necessary test or procedure, such as an MRI, as soon as possible, patients are left with the burden of contacting their insurance company to get the arbitrarily predetermined reference price based on their zip code. Once they receive that price, the onus is then on them to inquire with various in-network providers about how much they charge for the needed procedure or test. This adds time and pressure to an already stressful process and also delays medically necessary tests and/or procedures recommended by a doctor.

Don’t Just Take our Word for It…

Reference pricing has been rejected by states and employers for over 20 years. Even though there is a potential for minimal savings, few employers have implemented reference-based pricing because of the complexity of design, the risk of employees potentially facing catastrophic costs, and negative reaction from workers.

  • There is, at best, modest savings for employers. CalPERS, the California Public Employees' Retirement System, saves $8 million annually and has a budget of approximately $2.5 billion for Fiscal Year 2023-24.
    For significant savings all of the following must occur:
    • Patients and caregivers would need to be educated on how to shop for providers based on price.
    • Quality providers willing to accept the reference-based prices would need to be available in sufficient numbers to meet the patients’ needs.
    • Providers would need to accept the payer's determination of the price and agree not to bill the patient for the remaining cost of care.
    • Any legal, regulatory, or contractual barriers would need to be addressed.

THE BOTTOM LINE IS – REFERENCE-BASED PRICING IS BAD FOR PATIENTS AND IT'S BAD FOR NEW JERSEYANS.