Dive Brief:
- Increasingly, insurers are using reference pricing to establish what they'll pay for a service or procedure, typically setting reimbursements at a level charged by a good-quality provider.
- The idea is to save money by shunting consumers toward lower-cost providers. If the consumer goes to a provider that charges above the reference price, they pay the difference. The tactic is commonly used in European national health insurance systems.
- Although its major impact has so far been improving value in drug prescription programs, in some cases, reference pricing has had a major impact on provider prices for complex procedures. For example, prices for hip and knee replacements fell by about one-third after the California Public Employees' Retirement System required workers and retirees to pay for all costs above the reference price of $30,000.
Dive Insight:
One view of lowering costs assumes that if consumers have high deductibles, they'll place market pressure on providers to lower their prices. However, they don't tend to have enough information to do this successfully, nor can they afford large first-dollar payments for care. Reference pricing, meanwhile, is likely to be a more effective strategy, as the party with real market insight (the insurer) sets the pricing structure, making it much easier for consumers to know where they stand and what to demand from providers. Giving consumers this guidance has considerable promise.