This post will provide an overview of reference-based pricing, point out successes and difficulties with the strategy, and highlight how HealthJoy is the best solution at navigating employees in a reference-based plan.

Why Reference-Based Pricing

Reference-based pricing (RBP) is rapidly gaining in popularity as a method to help clients control healthcare costs. According to Aon Hewitt’s 2014 Health Care Survey, 68% of employers said their future strategy would include RBP.

In RBP the employer sets a maximum amount they will reimburse for certain medical services. Whereas traditional network agreements are based on a discount off of billed charges, RBP reprices claims based on fair market pricing (using Medicare, Average wholesale, MSRP). The issue with network agreements is that the discounts and billed charges are arbitrary. They can have little relationship to the actual cost of the procedure, but they offer comfort in knowing that patients can receive care without balance billing.

In one implementation of RBP by the California Public Employees Retirement System (CalPERS), the maximum reimbursement for cataract removal surgery was set at $2,000. Prices ranged from $1,009 to $14,099 for the same surgery at different facilities (Figure 1). For services that do not allow someone time to schedule in advance (i.e. emergencies), the plan will have to reimburse above the fixed amount. So in RBP, employers need ways to stay ahead of medical services for their own financial good and to help employees.

While RBP can reduce cost for both employer and employee, it has the potential to simply shift cost to the employee. In RBP, employees must take action. Plans provide a list of services, pricing structure, and providers who will accept the reference or negotiated price for each service, but if an employee doesn’t do their homework ahead of time they risk significant financial stress. Guidance is key.

RBP Success

The Employee Benefit Research Institute (EBRI) analyzed claims data and found that, by using RBP for the six healthcare services they analyzed, employers would have reduced their health care spending by 1.6 percent. Take a moment to study Figure 1 below and you’ll understand how RBP can have such a dramatic impact on reducing healthcare costs.

For cataract removal surgery, while only 6% of California hospital outpatient departments charged prices below the $2,000 contribution limit, 73% of ambulatory surgery centers charged below $2,000 (N.B. that there was no discernible difference in quality). By incentivizing and guiding employees to lower-cost facilities, employers stand to significantly reduce healthcare costs. In the first year, the average price paid by CalPERS for cataract removal decreased by 10.2 percent, and they saved an estimated $1.3 million over two years compared to what they would have spent without RBP.
Core to RBP’s success is transparency. Understanding the costs and profits in healthcare services allows employers to identify lower cost facilities and more accurately project their healthcare spending trends. With transparency, employers can achieve results like in the case of CalPERS or in a recent Lockton client case study. For the Lockton client, after 2 years of RBP premiums hadn’t increased at all!

Burden on Employees

The main problem of RBP is the impact on employees. When they are not well-educated on their specific plan or guided to appropriate providers, the consumer can be left to pay the difference between the reimbursement maximum and the provider’s charge (a practice known as “balance billing”). When the employee is smacked with thousands of dollars in medical bills, such cases negatively impact the employer as well. Financial stress reduces productivity, and the employee may complain to others in the company or write negative reviews online.

Even where RBP is successful, employees can still be left burdened with more of the cost. For CalPERS patients, their average amount paid increased substantially after starting RBP. This increase was driven by those employees who continued to use hospital outpatient facilities. In these cases, patient responsibility increased from $1,045 in 2011 to $4,918 in 2012 and to $5,681 in 2013. We should note that the claims data didn’t include whether the additional amount was paid, so those increases could be overstated.

To successfully implement RBP, employee education and assistance is essential. Employers not only have to introduce RBP and how it works, what will be reimbursed and where those prices can be attained, … but also constantly remind employees about RBP. The vast majority of employees won’t need a procedure in the week after their enrollment meeting. When it’s been 6 months since they heard about this RBP thing and they go to a high-cost facility, it’s already too late. Employers need to engage early and often to keep RBP top-of-mind.

In a study by George Loewenstein from Carnegie Mellon University, he found that only 14% of employees could answer basic questions on insurance features. Employees need ongoing guidance for insurance, and it’s especially true for those on RBP plans. Without assistance, patients can feel powerless to the costs of a single mistake. When people have to work alone with online transparency tools, we’ve found they often get overwhelmed and don’t make the best decision. They may also think they have standard health insurance, receive a balance bill and then turn to HR or the insurance advisor who ends up having to deal with it.

Even successful transitions bear their own problems. For the Lockton client, the employer invested significant resources in communication and education and still saw a benefits team overwhelmed by balance bills and partner communication. In total, 10 percent of all claims were questioned. The burden is on the employee to follow up immediately upon receiving a balance bill, so even more bills could have gone unreported.

As Phia Group’s SVP and General Counsel Ron Peck said in their December 2015 webinar, “The only way for reference-based pricing to succeed is patient advocacy and education.”

HealthJoy is Your Solution

To maximize success and minimize problems associated with RBP, you need a technology solution that will consistently educate and engage employees. From the moment an employee logs into the HealthJoy app, our virtual assistant JOY is educating them on RBP and the potential costs of not checking with the app before seeking care. If employees have questions beyond what JOY can handle, one of our healthcare concierge joins the chat to explain more complex concepts.

HealthJoy stays top-of-mind with both a physical and digital presence. We get more than 30% of employees using the HealthJoy app every month with ongoing engagement campaigns. We’ve proven that employees are more likely to use our app before going in for any healthcare service. All of the information on providers and pricing is loaded into the employee’s app, so our virtual assistant JOY and concierge team can navigate the employee to a lower-cost facility. This care coordination reduces balance billing, and if a balance bill does arrive the member knows to take a picture of the bill and send it to us. Our concierge team can take the bill from there, calling providers and facilities to negotiate lower prices. We can also coordinate with the benefit advisor where appropriate.

Reference-based pricing chat with Joy

When CalPERS initiated RBP for elective knee and hip replacements, they designated 41 hospitals where members could go for the $30,000 reference price. By loading that information into HealthJoy, we can make sure that employees aren’t charged the difference between the reimbursement and up to $120,000.

Since RBP is often done in hybrid with a PPO, for example, by layering those two in the app we can avoid the network conflicts where a contract is in place. And since members have their id cards in the app, our team will catch the issue and communicate to the broker when network logos are present.

HealthJoy becomes the air traffic controller for any RBP plan, guiding employees to the right care at the right price.

Other Resources

Several thought-leaders on reference-based pricing are worth following on LinkedIn or reaching out to directly. Benefit advisors like David Contorno, Andy Neary, and Danielle Mason often take advantage of the savings opportunities for their clients.

I highly recommend the resources provided by Adam Russo and Phia Group at

I would also recommend checking out people like John Powers at Advanced Medical Pricing Solutions (AMPS), where they specialize in helping companies implement reference-based pricing.

To speak with us about using HealthJoy with your clients, contact us today.



SIIA 2014 Annual Meeting, Phoenix Arizona, Monday, October 6th’s%20December%20Webinar%20-%20RBP%20and%20Balance%20Billing%20-%2012-15-15.mp4

Reference-based pricing: Creating healthcare shoppers. Pamela Rich and Brenna Shebel, 2014.
A bold move: Lockton client success with RBP
Harmonizing Supply and Demand for Health Care Services: An Exploration of Demand-Based Strategies to Encourage the Active Engagement of Consumers
In Reference to Reference based pricing
Reference-Based Benefit Design Changes Consumers’ Choices And Employers’ Payments For Ambulatory Surgery

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