Pros and Cons of Reference Based Pricing - Zupnick Associates

Now is a good time to take a look at the pros and cons of reference-based pricing as it becomes more popular. The State of Montana developed RBP for state employees, but it’s spreading quickly.

That’s because they designed it to moderate skyrocketing costs of the traditional hospital reimbursement system. And, the model standardizes prices that insurers pay hospitals.

So, networks that adopt it pay a multiple of a Medicare reference price. Thus, the model helps maintain access to services, while it keeps spending in check. Take a look at the pros and cons of reference-based pricing.

Pros and cons of reference-based pricing

Reference-based pricing has spread from state to state in the US. Networks in New York, Maine, North Carolina, Montana, and other states already use it.

What are the pros and cons of reference-based pricing? And, how does it compare to the traditional hospital reimbursement model?

Pros of RBP

RBP Reduces Medical Costs

First, the designers of RBP for insurance networks aimed to get the State of Montana’s health care out of the red. It then eliminated excesses, such as one hospital with an average reimbursement of 611% over Medicare pricing. The system also took the state from a $374 million liability to a $217 million reserve in just three years.

Greater Transparency

RBP uses a multiple of Medicare pricing as a ceiling on insurance payouts. It thus keeps pricing transparent so that everyone in the network can refer to them. So, hospitals can still charge more, but they must meet the challenge of balance collecting.

Control Over Future Reimbursements

In the traditional hospital reimbursement system, insurers cannot accurately predict reimbursement costs. RBP, though, standardizes prices globally. So, it eliminates variation based upon non-transparent and changing hospital prices.

Stability with Adoption

Of course, RBP has quickly expanded from its birthplace. Plus, it adheres to an already functioning healthcare system: Medicare. As it expands, networks have been refining and improving the system. So, employers joining this system buy into a well-developed and stable iteration.

Increasing Support for RBP

Since Montana’s adoption of the RBP, other states, including the east coast states Maine and North Carolina, have come aboard. And, increasing support means increasing resources and baseline cases for a refined model.

Not only has the RBP system expanded rapidly to other networks, but new systems are also reviewing it. As use increases, so, naturally, will support resources.

Cons of Resource-Based Pricing

Of course, any new system, regardless of its benefits, comes with disadvantages. And, here are some obstacles for reference-based pricing.

RBP May Not Address Variation in Use

RBP does reduce the variation in healthcare costs. However, it does not address how hospitals follow through on treatment.

A California study showed that centers-of-excellence models may better address variation in use. Thus, cutting costs to approximate Medicare reference prices may cut into quality care and follow-up on patients. However, further research may show otherwise.

RBP Members May Have to Foot Balance Billing

Patients in the RBP system receive a balance billing after treatment. It covers the difference between the healthcare provider’s charge and the RBP price. High medical costs can “potentially put members’ financial standing at risk as a result of balance billing,” according to Healthgram.

Traditional hospital reimbursement systems, though, also pose this risk. Only comparison data from the newer RBP will demonstrate the ultimate difference.

Healthcare Providers Can Deny Care

As with the existing hospital reimbursement system, healthcare providers can deny care. Facilities with higher expenses may find themselves scrambling to cover reimbursement expenses and so set service ceilings.

Providers can deny care, “especially when the number of patients utilizing reference-based pricing hits critical mass.” It remains to be seen if care denial rates vary with the implementation of RBP.

Reference-Based Pricing Eliminates Provider Contracts

Because RBP eliminates provider contracts, litigation may arise for employers. Binding contracts typical of the traditional hospital price-based system can reduce reimbursement disputes. As RBP iterations expand, it remains to be seen how networks will handle this issue.

Pros and cons of reference-based pricing

Pros and cons of reference-based pricing, as opposed to the traditional hospital based reimbursement suggest that both systems fail in shared areas. However, RBP offers greater price stability and predictability.

If you want to know more about RBP for employer insurance, check with a qualified insurance broker. For details, contact us.

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