A full-service health plan solution with the savings of reference-based pricing (RBP) built-in provides savings that could never be achieved with a PPO, and more freedom too. And with those cost savings, employers are laying the groundwork to be more competitive.

The reference-based pricing (RBP) model starts at the bottom with an actual cost amount, then adds a fair profit margin to calculate a total cost of service. Since RBP models use benchmarks such as cost-of-service and Medicare reimbursement rates, billed charges are calculated that are fair to providers, employers and employees.

The bottom-up approach of reference-based pricing differs greatly from the PPO system, which instead starts at the top with a potentially inflated price from a facility’s chargemaster, and then offers a variable discount to reach a billed amount. Employers have limited insight into how facility prices are calculated. Additionally, these amounts, which are used by PPOs for medical services, can vary widely even within the same geographic region.

The following example uses a CAT Scan to highlight the disparity in pricing and how reference-based pricing can make a difference in what is paid:


Employers who have switched to reference-based pricing have experienced first-hand how the cost-containment solution can transform their bottom line and increase their competitiveness:

  • It allows them to reinvest savings on healthcare into other areas of their business
  • It reverses the trend of higher expenses that are burdening their employees and limiting wage growth
  • It helps them attract and retain skilled employees with more competitive benefit packages

The Bottom Line

While the current healthcare landscape is presenting unprecedented challenges for employers trying to balance cost and quality, breakthrough cost-containment solutions like RBP can help level the playing field.

For more information, contact American Health & Wellness today.