An In-Depth Understanding of the Reference Pricing System

The developments and progressions in the domain of healthcare services have proved to be a boon for the patients and there is no doubt about this fact, however, the ever-rising cost of healthcare services is a serious issue that needs much consideration. There have been several cost reduction strategies that have been successfully designed and implemented to address the rising healthcare service costs and one such approach is Reference Pricing. The health insurance companies pay the healthcare service providers and hospitals for the inpatient and outpatient services offered to the insured patients on the basis of the pre-fixed Medicare rates. Reference-Based Pricing is often considered a preferred option for self-funded employers, unlike traditional insurance plans.

How the method of Reference Pricing works and why is it considered preferable?

In most organizations today, the employees are provided with health insurance, which makes availing of quality medical services easier for the employees and for their families as well (in some cases). Employers often choose self-funded health plans as this system has a number of benefits. Funding the employee insurance premiums can prove to be a great financial burden on the employers if a proper pricing system is not followed. Also, providing the employees with an affordable and robust medical insurance coverage is the objective of the employers. And therefore, considering all these aspects, Reference Pricing is believed to be a preferred option.

Reference-Based Pricing (RBP) is primarily used as a cost-containment tool and it is so named as the plan’s pricing is based on a reference. RBP helps in cutting healthcare costs and allows employers to save a lot on employee health insurance expenses. This innovative pricing system has the much-desired transparency and the health care service charges are deflated.

The medical claims submitted by the hospitals do not always reflect the actual costs of the healthcare services and can largely vary as per the region, type of providers, and other factors. Reference Pricing brings consistency, reliability, and transparency in the healthcare costs as this pricing model works by limiting the costs to a certain extent on the basis of a predetermined fixed amount for particular healthcare services.