I’ve heard a few things about reference-based pricing (RBP) and would like some clarity. Does RBP work in Wisconsin?
This question is a personal favorite of mine. Let’s start with a short history lesson.
RBP was introduced in 2007 as an alternative to traditional network‑based health plans. Most health plans rely on carrier networks with contracted rates that encourage members to stay in‑network. When members go out‑of‑network, the cost can be significantly higher. In addition, these network contracts often limit employers’ ability to fully understand the true cost of care. Under ERISA, employers have the right to pursue fair and reasonable pricing—this is where RBP comes in.
With RBP, providers are paid according to a fair and objective benchmark, such as a percentage above Medicare or above the provider’s cost, rather than a discount off billed charges. Employers across the country have used this approach for many years, often realizing 15–30% savings compared to traditional carrier networks.
The savings opportunity in Wisconsin is significant, as a recent RAND report shows employers in the state paying a higher average % of Medicare, 318%, than most other states (the national average is 254%). RBP can help address these high costs by offering predictable, transparent pricing—while still allowing members to use the same providers they rely on today. Below is an example of the price disparity and savings potential in one Wisconsin market for a common procedure like a CT scan:
What's a fair price for a CT scan in Milwaukee, WI?
| Average Billed | Average Cost | Medicare Pays | At a 50% Discount, the PPO Pays | RBP Pays | |
|---|---|---|---|---|---|
| Hospital A | $2,410 | $145 | $162 | $1,205 | $194 |
| Hospital B | $2,744 | $91 | $150 | $1,372 | $180 |
| Hospital C | $3,126 | $101 | $146 | $1,563 | $175 |
“discount” off billed charges.
cost plus 12% and Medicare plus 20%
to determine a fair price.
significant savings
versus your standard PPO allowable.
When an RBP model is introduced, providers may be unfamiliar with the ID card or payment approach. They may also bill members for the difference between their charge and the plan’s allowed amount, known as balance billing. This only occurs about 3% of the time nationally and is not unique to RBP; it also occurs under many traditional carrier plans. Strong member education and year‑round HR support are important components of a successful implementation.
Yes—RBP does work in Wisconsin. As with any health plan strategy, it is important to evaluate your goals and choose a partner that aligns with your organization’s needs.
Additional Considerations for Self‑Funded Plan Sponsors:
- The responsibilities of a fiduciary
- Stop‑loss implications and potential savings opportunities
- Pharmacy benefit models—transparent/pass‑through vs. traditional
- Change management and effective communication
This response was provided courtesy of Erin Duffy, Director of Business Development with Imagine360. Erin will be leading an educational webinar on July 23 to further explain the viability of reference-based pricing (price protection) as a health plan strategy.