Reference-based pricing is a payment system that replaces or enhances a health plan’s traditional “usual and customary” pricing for contracted claims. Rather than calculating the average charge of providers in a geographic area or a pre-contracted cost, a health plan utilizing reference-based pricing instead arbitrates its allowable amount for medical claims based on its chosen method (most commonly Medicare rates, or a certain percentage above those rates), which is a price that the payor deems reasonable.

In other words the employer, the payor brings their rates with them into the health care agreement, not the other way around.

This represents a much more independent framework for determining sensible health care reimbursement payments to providers – since billed charges (and therefore the traditional PPO model of percentage discounts off of those billed charges) are so often ridiculous.

Have a small group health plan that costs too much? Have a group of employees in a preferred demographic such as younger or healthier members? Maybe reference based pricing is for you!

Ask your Total Benefit Solutions health insurance experts at (215)355-2121!