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Employers Cut Health Plan Costs with Reference-Based Pricing | SHRM

he U.S. health care system is notorious for its lack of price transparency. Some self-insured employers are responding by using reference-based pricing (RBP) with doctors and hospitals—in effect, setting their own prices for health care services.

RBP is a cost-containment strategy that pays doctors, labs, clinics and hospitals a percentage of an established benchmark. Most often, the reimbursement rate is 120 percent to 300 percent of Medicare pricing for a given service, “based on what’s reasonable in terms of the local health care market,” said Marty Joseph, president of Chicago-based BAS Benefits Administrative Systems LLC, a third-party administrator (TPA) of self-funded plans.

A May 2019 report by the RAND Corp., a research think tank, found that prices paid to hospitals by private health plans averaged 241 percent of what Medicare would have paid, with wide variation in prices among states. Based on their findings, the RAND authors suggested that employers design coverage using “contracts based on a multiple of Medicare or other prospective case rates.”

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Employers Cut Health Plan Costs with Reference-Based Pricing.

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