Reference-Based Pricing vs. Traditional Commercial Claims Pricing: What Providers and Payers Need to Understand

The way some healthcare services are processed and priced is changing. While medical services have historically used commercial claims pricing, many self-funded employers are switching to a different model called reference-based pricing. When healthcare providers and payers are adjusting from an established revenue cycle built for commercial claims pricing, RBP brings potential risks for coding accuracy. Here, we’ll review the differences between revenue-based pricing and general commercial claims pricing, and how accurate coding can be even more important with RBP.

❓ What is Commercial Claims Pricing?

Commercial claims pricing uses negotiated contracts between a health plan and a provider network. With commercial claims pricing:

• Providers have to accept established payment rates to be included in insurance plans.

• Rates are defined in payer-provider contracts. These can establish things like per diems and case rates.

• Payer’s claims pricing systems adjudicate submitted claims against contracted terms and calculate the allowed amount. This system works with an established infrastructure. Within that system, payers and providers alike have to maintain accurate pricing logic. Many providers use commercial pricing software to support accurate grouping within this model. However, the pricing suite must reflect current grouping logic and correctly apply that logic to commercial claims. When accuracy slips, healthcare organizations can risk pricey audits and denials.
  

This system works with an established infrastructure. Within that system, payers and providers alike have to maintain accurate pricing logic. Many providers use commercial pricing software to support accurate grouping within this model. However, the pricing suite must reflect current grouping logic and correctly apply that logic to commercial claims. When accuracy slips, healthcare organizations can risk pricey audits and denials. 🔎 What is Reference-Based Pricing?

Reference-based pricing health plans occur when a self-funded employer isn't using a traditional health insurance network. Often, employers that use reference-based pricing for employee healthcare plans are motivated by cost control. When an employer uses RBP, they can set reimbursement levels at a percentage of an existing benchmark rate. Reference-based pricing allows plans to cover services from any willing provider, rather than specific providers they'd access through commercial pricing. Employers will use a third-party administrator to process claims and make payments. With reference-based pricing, a plan establishes a benchmark rate (for example, 200% of Medicare’s allowable rate). Often, employers will use Medicare (CMS) rates to establish standards. They'll also sometimes use their own cost data from historical claims to set benchmarks. Claims are priced against that benchmark, even if the provider is out-of-network. Then, providers who accept RBP rates are paid. Those who don’t accept RBP, but provide services, may bill the patient for the balance after the fact. When an employee receives a surprise "balance bill" after the fact, they may try to fight payment. For self-funded employers, reference-based pricing is an enticing cost-containment strategy. RPB plans have become an increasingly popular alternative to commercial claims pricing for this reason. While these plans are less costly for employers, they can also provide lower reimbursement levels to patients and leave them with surprise bills. This creates a mixed bag: while patients see any provider who accepts RBP, they may pay more for healthcare overall.

⚖️ Key Differences: RBP vs. Traditional Commercial Claims Pricing in Health Plans

Reference-based pricing plans and commercial claims pricing have a few key differences for providers, payers, and patients. Here, we'll review those differences: Commercial Pricing Plans:

• Negotiated payer-provider contracts serve as the pricing anchor.

• Only in-network providers are allowed.

• Rates are negotiated during contract creation and maintenance.

• If contracts or pricing are applied incorrectly during processing, providers risk underpayment.

• If coding is inaccurate, the DRG assignment and contract rate can be affected, leading to underpayments, denials, or potential audits.
  

RBP Plans:

• Medicare benchmarks often serve as the pricing anchor.

• In-network providers are not required.

• Rate negotiation is not required, as rates have been established through the pricing anchor benchmark.

• If rates are rejected, providers risk balance billing disputes.

• If coding is inaccurate, the benchmark payment is inaccurate too.
  

🧠 Why Coding Accuracy Matters More in an RBP Environment Coding errors can compound together in an RBP environment. Think about it this way: in commercial claims pricing, coding errors impact one claim. The impact is more limited because of payer contract restrictions. When RBP is used, coding errors are more likely to compound across claims. For example: if one claim is grouped into a lower DRG rate because of a missing code or human error, the base rate then drops. This means that an RBP plan paying 160% of the Medicare rate is then paying 160% of a lower number. This is why claims pricers need to fully and accurately capture claim complexity in RBP, ensuring that a small mix-up doesn’t turn into hundreds of dollars lost.

🏥 What Does this Mean For Health Insurance Payers and Providers?

The increase in RBP claims may be catching your system off guard! Protect your claims process by ensuring that your coding captures all secondary diagnoses and procedure codes. RBP requires current and accurate Medicare logic. If your organization is adjusting to RBP pricing, clear audit trails are also necessary, with clean grouper logic. Ideally, your claims pricer should support Medicare and commercial logic alike. While commercial claims pricing and RBP have different systems, they have the same basic needs:

• Accurate claim data

• Correct grouping

• Reliable pricing logic
  

When providers and payers have these elements solid, RBP won’t catch them off guard. Precision in coding, grouping, and pricing protects your revenue and your organization. Learn more about Micro-Dyn’s commercial claims pricing tools. Micro-Dyn helps you control costs and supports your organization through complex claims.