Reference-Based Pricing: A Smarter Starting Point for Healthcare Costs
Healthcare prices rarely follow a straightforward formula.
The same procedure can carry dramatically different prices depending on the provider, facility, geographic market, and health plan contract. Employers may receive a negotiated network discount, but that discount is often applied to a provider’s billed charge rather than an independent measure of what the service should reasonably cost.
Reference-based pricing, commonly called RBP, takes a different approach. Instead of beginning with the provider’s billed charge, an RBP plan establishes payment using a transparent benchmark.
For self-funded employers seeking more control over healthcare spending, RBP can offer an alternative to traditional network pricing. Its success, however, depends on thoughtful plan design, accurate claim review, strong provider communication, and ongoing support for members.
What Is Reference-Based Pricing?
Reference-based pricing is a method health plans use to determine how much they will pay for a healthcare service.
Rather than relying solely on rates negotiated between a provider network and an insurance carrier, the plan establishes an allowable payment using an objective reference point. Medicare reimbursement rates are commonly used for medical claims because they are publicly available, geographically adjusted, and specific to individual services.
Plans may also consider provider cost data, cost-to-charge ratios, commercial benchmarks, historical reimbursements, and other relevant information. The plan then pays a defined amount or percentage above the selected benchmark.
For example, an RBP plan may reimburse a hospital at a set percentage of the Medicare rate for the same service. The exact methodology can vary based on the plan, service category, provider type, and local market.
This approach gives the employer a clearer foundation for determining what the plan will pay. It replaces an open-ended discount from a provider’s billed charge with a defined and more transparent reimbursement methodology.
How Does Reference-Based Pricing Work?
Although every program is structured differently, the medical RBP process typically follows several steps:
1. A member receives care from a medical provider.
2. The provider submits a claim to the health plan.
3. The claim is reviewed for eligibility, coding, accuracy, and medical necessity.
4. The plan calculates the allowable payment using its established RBP methodology.
5. Payment is issued to the provider.
6. The RBP administrator addresses provider questions, payment disputes, or requests for additional reimbursement.
Unlike a traditional PPO plan, many RBP arrangements do not depend on a broad network contract to set hospital reimbursement. Members may have greater freedom to seek care from different providers, although access arrangements and provider acceptance can vary.
The strongest programs do not leave the employer or member to manage these interactions alone. An experienced partner should explain the reimbursement methodology to providers, respond to questions, negotiate when appropriate, and assist members if a provider seeks additional payment.
Why Are Employers Exploring RBP?
Employers continue to face sustained increases in health plan costs. The average annual premium for employer-sponsored family coverage reached $26,993 in 2025, an increase of 6% from the previous year. Employees contributed an average of $6,850 toward that coverage.
Commercial hospital prices can also be significantly higher than Medicare reimbursement for the same services. Research has found substantial variation among states, hospitals, and health systems, making it difficult for employers to determine whether a negotiated price represents a reasonable value.
Traditional network discounts do not always solve this problem. A sizable percentage discount can still produce a high final cost when it is applied to an inflated billed charge.
RBP changes the starting point. Rather than asking how large a discount the plan received, employers can evaluate whether the final payment is reasonable, consistent, and supported by objective data.
What Are the Benefits of Reference-Based Pricing?
Greater Cost Control
RBP establishes clearer limits around what the plan will pay for covered healthcare services. This can help reduce exposure to excessive billed charges and wide pricing variations. Actual savings depend on utilization, geography, provider behavior, plan design, and the reimbursement methodology.
More Transparent Reimbursement
Employers should be able to understand how their health plan payments are calculated. RBP uses a defined methodology instead of relying entirely on confidential network contracts.
Less Dependence on Billed Charges
Hospital billed charges are established by the facility and may have a limited relationship to the actual cost of delivering care. RBP focuses attention on the final allowable payment rather than the appearance of a large discount.
Flexible Plan Design
Some employers use RBP for hospital services while maintaining network arrangements for physicians or other categories of care. Others apply reference-based principles to prescription drug spending or combine RBP with direct contracting, care management, pharmacy programs, and other cost-containment solutions.
RBP Can Extend Beyond Medical Claims
Reference-based pricing is most commonly discussed in relation to hospitals and medical claims, but the same underlying principle can also inform prescription benefit strategies. A reference-based approach can use defined pricing benchmarks to establish what the plan and member should pay rather than accepting an unclear or inflated starting price.
Is RBP Right for Every Employer?
No healthcare funding strategy is the right fit for every organization.
However, RBP may be especially relevant for self-funded employers that want more visibility into healthcare payments, have sufficient claims experience to evaluate the opportunity, and are prepared to educate their workforce.
A detailed analysis can help determine whether RBP should be implemented across the plan, applied to selected services, or combined with other cost-containment strategies.
What to Look for in an RBP Partner
The reimbursement formula is only one part of an effective RBP program. Employers also need the operational infrastructure to administer the plan and support the people who use it.
A capable partner should provide:
- A defensible pricing methodology
- Thorough claim review
- Provider communication and negotiation
- Member education and advocacy
- Transparent reporting
- Coordination across the health plan
BRMS Connects Employers with Specialized RBP Expertise
BRMS helps employers and brokers evaluate reference-based pricing as part of a complete self-funded health plan strategy.
Rather than relying on a single solution or methodology, BRMS brings together administration, analytics, plan design guidance, and specialized partners to address different areas of healthcare spending.
The Proof Is in the RBP Numbers
We have seen the potential impact of a thoughtfully administered medical RBP plan firsthand. One BRMS client, a California employer with approximately 300 employees, moved to an open-access RBP medical plan. During the first year, the employer achieved:
- A 38% reduction in overall plan spending
- Approximately $1.6 million in savings
- 99% provider acceptance
- A 41.4% reduction in claims cost per employee per month
- Zero known balance bills across more than 2,000 processed claims
The employer also experienced only three provider-access issues, all of which were resolved, and renewed its stop-loss coverage at a 10.1% reduction. This shows what’s possible when RBP is supported by careful analysis, experienced administration, responsive member service, and the right partners.
Contact BRMS today to learn more about our RBP capabilities and explore the plan design and administration options available for your organization or clients.
