Before getting into the details of how it works, let me explain one of the fundamental reasons why reference-based pricing (RBP) was introduced in the first place.

It was once quite common for benefit administrators to work with PPOs in negotiating discounted rates on behalf of employers and their health plans. Over time though, it turned out that these “discounts” weren’t really translating to better prices. In fact, as TPAs examined incoming health claims, they were often finding that the rates negotiated weren’t being charged consistently or were higher than those that others were being billed.

The concept of RBP helps address this issue in that various parties are working together to determine a fair price by medical service or procedure. This creates more uniformity for the employer, and it also provides more transparency for the end user.

Consider a hip replacement, for example. With the RBP model, TPAs/benefit administrators will work with an individual facility to establish a reasonable price for the surgery. This is done by considering two main factors. The first is the allowable reimbursement rates for hip replacements published by the Center for Medicare and Medicaid Services (CMS). The second is the geographic location where the procedure will be performed. Based on an evaluation of these core elements, a reasonable rate is determined.

Do you see how the RBP approach can be so effective? It contains costs and eliminates the risk an employer faces in receiving a claim charge that’s 10 times higher than anticipated. It also gives employees an added layer of pricing transparency in knowing what the cost will be if they choose a certain facility.

In the case of Cypress, we have a number of employer-clients who are now using the RBP model. Many are saving 60% or more on billed claim charges, and in some cases, this number is upwards of 70%.