Any claim pricing methodology based on analyzing is referred to as reference based pricing healthcare. Medicare pricing, the provider's reported costs, the average wholesale price, third-party databases, and other parameters are frequently used for reference-based pricing. Simply put, the plan's pricing is based on a reference, hence the name "reference-based pricing."
Reference-based pricing is a way to pay for non-contracted claims that replaces or improves a health plan's traditional "usual and customary" pricing. A health plan using reference-based pricing decides the right amount for medical claims based on its chosen metric, typically Medicare rates or a certain percentage above those rates. It is done instead of calculating the average charge of providers in a geographic area or using a similar traditional method. It presents a substantially simpler structure for deciding reasonable and market-based installments - since charged charges are frequently illogical.
To implement reference-based pricing, some health plans decide to terminate all network contracts, treat all claims as coming from outside the network, and apply reference-based pricing to all claims and maintain a conventional PPO network and apply reference-based pricing to only non-contracted claims. Some organizations strike a balance between these two approaches by utilizing reference-based pricing only for claims that fall outside of the contracting structure that has been selected.
In case of the CMS claims processing manual, the ultimate objective of reference-based pricing is not only cost containment but also not just in terms of the health plan's actual claim spend. Since the plan's costs are lower, members pay lower plan contributions; stop-loss carriers see fewer claims that reach the specific point, and even the plan's procedural costs benefit from reference-based pricing.
Pricing based on references is not a one-size-fits-all approach. Utilizing reference-based pricing for all claims, facility claims alone, out-of-network claims alone, and numerous other options are available. Individual health plans will need to consider their options and select the option that makes the most sense for them.