Why are Employers Turning to Reference-Based Pricing to Control Healthcare Costs?

Home » Blog » Articles » Why are Employers Turning to Reference-Based Pricing to Control Healthcare Costs?

shutterstock_178094303In the last few years, companies have started to turn to reference based pricing as a way to control healthcare costs.  Reference-based pricing is a system where employers can set the maximum amount they intend to pay for a given type of procedure.  The main focus of this technique is procedures that have a wide range of potential prices, but relatively similar results regardless of where the procedure is performed.

Why does reference-based pricing matter?

In 2015, TrendCT ran an analysis of costs at various Connecticut hospitals to check for differences in price and found that the same procedure could cost more than twice as much depending on where it was performed. Many healthcare providers are willing to accept a lower negotiated cost instead of completely losing all business from a given company.

Individual employees are theoretically on the hook for the difference between the company’s set price and what the hospital actually charges but, in practice, this only occurs for a small percentage of patients.  Aside from the company’s push to keep costs down, employees are responsible for selecting a location to have the procedure done and most actively look for a facility that won’t charge more than the negotiated price. Reference-based pricing companies also tend to provide legal support in the event of a dispute, further shielding individual employees from potentially costly claims.

How much can companies save by using this model?

Results vary by company, but Risk Managers did a study of how much their clients had saved on health care costs, and the end result was a 43% decrease from the traditional model. Employees generally save above and beyond this amount thanks to lower pricing and lower deductibles.

How to get employees to participate in reference-based pricing

The best way to get employees to participate in a reference-based pricing program is to educate them about the real costs of healthcare. Most notably, the majority of high-priced healthcare systems are not supported by better outcomes. Controlling the price of healthcare makes it possible to control the price of insurance – a high-quality, low-cost health insurance plan cannot exist alongside a low-quality, high-cost healthcare system.

For example, the average MRI costs over $2,600 with traditional pricing. When reference-based pricing is used to control healthcare costs, the cost of this scan can drop as low as $450. When employees understand that they can save a lot of money without reducing their quality of care, they’re likely to jump at the opportunity.

It isn’t always easy to control healthcare costs – not when there are so many factors outside of your control that push them up There are things you can do, however, to reduce what your company is spending.  Using reference-based pricing is a better long-term plan than shifting the cost to employees or reducing the benefits they receive.  Your employees are one of your most valuable assets; working to keep
them healthy is not only good for them but also good for your business and your budget.