Healthcare costs continue to rise in the United States, creating significant financial pressure on employers and employees alike. Traditional health plans often rely on provider networks with negotiated discounts, yet these discounts are applied to billed charges that are frequently inconsistent and inflated. To address this challenge, some employers have explored Reference-Based Pricing (RBP) as an alternative approach to controlling costs.
Reference-Based Pricing (RBP) is a healthcare reimbursement model that establishes payments for medical services based on a defined benchmark, or 'reference point,' rather than negotiated rates through a provider network. Instead of paying charges determined by providers or insurers, an RBP plan ties reimbursement to objective data such as Medicare reimbursement rates, hospital cost-to-charge ratios, or independent data sets.
The primary reason RBP exists is to reduce healthcare costs and address the lack of transparency and consistency in healthcare pricing. In many cases, the price for the same procedure can vary dramatically between providers, even within the same geographic area. (see example below) Traditional PPO contracts often provide percentage discounts from billed charges, but because billed charges are not standardized, the resulting costs may still be substantially higher than benchmarks like Medicare. Today, PPO contracts pay on average over 2.5x Medicare rates for the same services. Sometimes, even over 500% of Medicare.
PPO Example for the same procedure:
- In 2022, private insurers and employers paid 254% of Medicare rates for hospital inpatient and outpatient care.
- From 2023 to 2024, employee health coverage rose 6.4%, reaching $14,823 per worker.
- In 2024, commercial payments at ambulatory surgery centers averaged 170% of Medicare.
- In 2025, costs are projected to rise another 9%, exceeding $16,000 per employee.
- That 8% cost trend in 2025 marks the highest increase in more than a decade.
- Looking ahead, WSJ reports the largest employer health insurance cost increases in 15 years, with another 9.5% jump expected in 2026.
RBP Repricing Methodology is to pay providers a fair and reasonable percentage above Medicare rates. RBP promotes transparency and allows employers to control costs. Best-in-class RBP Vendors use experience, knowledge, and technology to determine what the appropriate rate of reimbursement is per claim, per provider, depending on type, geography, historic acceptance, etc.. There are different reimbursement rates for different types of care. Infusions are different than inpatient care, radiology is different than PT, etc., even within the same system. Most RBP Vendors also have contracts with health systems across the country. These contracts were developed with the RBP methodology in mind, making arrangements with providers to pay them at a reasonable rate to allow members access to their system of providers.
Direct contracting can strengthen a Reference-Based Pricing (RBP) strategy by balancing flexibility with strategic partnerships.
Strategic Where it Matters: Direct contracts are established with strategic providers where stable pricing and predictable outcomes benefit the employer and employees and the provider. This ensures members have access to quality care at pre-negotiated, competitive rates.
The result: employers gain cost control and negotiation leverage, while employees enjoy broad access to care, knowing key contracts are in place where they’ll need them most.
The member will use their benefits to see a provider just as they normally would: go into the office, present their ID card, and receive care. Afterward, the member will receive both an Explanation of Benefits (EOB) from the Third-Party Administrator and a bill from the provider.
The member needs to compare the EOB with the provider’s bill. If the member’s responsibility does not align, they should call the number on their ID card to address the possibility of a balance bill.
From this point, the process will vary dramatically depending on whether the Employer has chosen to partner with a best-in-class Reference-Based Pricing (RBP) vendor. There is a large disparity in performance, approach, and outcomes between RBP vendors. These disparities are material and will be ultimately felt by the member and plan sponsor in both the short and long term.
The goal is always to resolve the balance bill quickly and at the best possible price—because timely resolution directly impacts the member experience, the provider, and the overall success of the program.
Employers evaluating RBP should be aware of potential balance billing, the need for employee communication, coordination with stop-loss carriers, and vendor/TPA capabilities for repricing and provider negotiations.
When comparing RBP vendors, it is imperative to understand the following criteria:
Reference-Based Pricing represents a different way of thinking about healthcare payments—anchored in objective benchmarks rather than negotiated discounts. While it may not be the right fit for every employer, it exists as a response to rising costs and lack of transparency in the U.S. healthcare system. Understanding how RBP works and why it has gained relevance is an important step in evaluating plan design.