Why COVID-19 is spurring 'buzz' among employers about reference-based pricing

The financial pressures around COVID-19 are creating a “buzz” among employers about a potential shift to reference-based pricing (RBP).

Under this model, an employer would not contract with a traditional payer but instead with a vendor who manages coverage set at a flat rate across providers, typically significantly higher than Medicare but less than would be paid under a commercial plan.

Andrew Halpert, M.D., senior clinical consultant at Mercer, told FierceHealthcare that interest in this type of coverage was more common among smaller firms, but midsize and larger companies are also expressing interest.

“It’s the economic straits in their businesses that is pushing plan sponsors to ask about this as one of an array of potential cost-saving strategies,” Halpert said.

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Employers could see significant savings under an RBP model, in particular depending on where their employees are based. Halpert wrote in a blog post that employers spent an average of 241% of Medicare for care in 2017, paying 204% higher than Medicare rates for inpatient care and 293% higher for outpatient care. 

So, a reference-based plan that pays all providers at 150% of Medicare rates would represent significant savings for the company, according to the post. Halpert said that the potential for savings and the current financial challenges across the economy make it likely more employers will give these alternatives a try in the near future.  

He said it’s not all or nothing, either—some employers could adopt a hybrid model that offers RBP plans to workers in certain regions or to certain types of jobs. 

“It’s a funnel—not all who ask pursue,” he said, "but I think there will be enough going on in the top of the funnel or the filter that my prediction is that there would be more RBP plans in the next year or two.”

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There are downsides and challenges to launching an RBP model that could hinder them from expanding rapidly. For one, these models take time to roll out and require a complete overhaul in the team overseeing an employer’s benefits.

They also represent some notable downsides that could scare off workers from enrolling. Halpert said that the uniform nature of the pricing in these plans does put members at risk for balance bills, that an RBP vendor will step in and negotiate on their behalf.

In addition, members may not understand their benefits, so clear communication is a key challenge.

Despite these risks, the financial pressures posed by the pandemic are spurring more employers to at least start the conversation about whether an RBP model may work for them, when under ordinary circumstances they’d be unlikely to pursue one.

“These are not normal times,” Halpert said.