Reference-Based Pricing: a Welcome Disruption

Disruptors Change History in Boston – “Tea Anyone?”

These plans are a game-changer in our industry, and a much-needed disruption to the status quo……………

By Matt Brannigan and Lee Rufty

In January of 2020, the great state of North Carolina will shift state employee health benefits to a reference-based plan. That is huge news–$3.3 billion huge, to be exact[1]. By adopting a reference-based pricing plan, the state will calculate payment to providers at a percentage of the Medicare reimbursement rate. These plans are a game-changer in our industry, and a much-needed disruption to the status quo, particularly when adopted by a major employer like North Carolina.

With this move, the state is taking more control over what it will pay for its employees’ healthcare, shifting away from a top-down, network-style negotiation to a more bottom-up focus. Representing as many lives as it does, and paying out over $3 billion each year to providers, North Carolina is able to flip the script on negotiations. Instead of asking “what kind of a deal can you give us?” the state can simply say “here’s what we’re willing to pay, based on the Medicare reimbursement rate. Are you in or out?”

This plan stands to save the state of North Carolina a significant sum.  So, we’re left with an important question: why doesn’t everyone do it?

One reason may be concerns over “balance billing,” where providers take whatever payment the employer’s health benefit plan provides and send a bill to the member for the balance. These bills can come as a shock to members, but the reality of healthcare today is that members are already, in effect, getting balance billed. As deductibles, copays, and healthcare costs continue to rise, more and more members are finding themselves on the hook for higher and higher bills.

According to the most recent data from the Consumer Financial Protection Bureau, nearly 43 million U.S. consumers had unpaid medical debts in 2014. That is nearly 20% of all U.S. consumer with credit records[2]. A 2016 poll conducted by NPR, The Robert Wood Johnson Foundation, and Harvard’s T.H. Chan School of Public Health found that 26% of Americans “say health care expenses have taken a serious toll on family finances.” Medical debt caused another seven percent to file for bankruptcy, while 42% said they spent all or most of their personal savings, and 27% were unable to pay for basic necessities[3]. Members are already feeling the effects of high prices, with or without balance bills.

Rising healthcare costs are a complicated issue, and just as there is no single cause, there is also no single “silver bullet” solution. However, reference-based pricing solutions can help reduce the burden on members and employers. At the same time, members benefit from the standardized pricing/reimbursement guidelines for healthcare. And, in the rare cases where balance billing occurs, members may have additional resources to help negotiate a reduced bill or get the bill dismissed. The details vary from plan to plan, but the good news is that we have the power to mitigate rising costs while still delivering on the needs of members and employers.

The status quo for healthcare pricing is not working, at least not for our clients and their members. It’s time we disrupt it.

Matt Brannigan is a Regional Sales Director for CoreSource
Lee Rufty is a Regional Vice President of Sales for CoreSource


[2] “42.9 million Americans have unpaid medical bills” Associated Press, Modern Healthcare, Dec. 11 2014.

Posted on December 27, 2018