How Reference-Based Pricing Could Save Your Company 20% or More

A funding strategy reshaping how employers pay for healthcare without sacrificing access.

What Is Reference-Based Pricing?

Reference-based pricing (RBP) is a network strategy where claims are paid based on a benchmark rate — typically a percentage of Medicare reimbursement (e.g., 140–200% of Medicare) — rather than negotiated network discounts. Instead of paying whatever a carrier's contracted rate happens to be, the employer sets a rational, transparent payment standard.

Why Traditional Networks Are Expensive

Most PPO networks work by negotiating "discounts" off of hospital chargemaster rates — rates that are often inflated 3–10x the actual cost of care. A 40% discount off a $50,000 charge still means paying $30,000 for a procedure that Medicare pays $8,000 for. The discount is the illusion. The overpayment is real.

How Reference-Based Pricing Works

1. Your plan sets a payment benchmark (e.g., 175% of Medicare for that procedure at that facility)
2. When an employee receives care, the plan pays the benchmark directly
3. Most providers accept the payment — hospitals receive a clear, prompt payment at a reasonable rate
4. For providers who balance-bill (bill the employee for the difference), your plan includes a member advocacy team that negotiates on their behalf

Typical Savings

Groups that switch to RBP from traditional PPO networks typically see 20–35% reduction in claims costs. The savings are largest for hospital-based services (surgery, imaging, labs) where chargemaster inflation is greatest.

What About Member Experience?

This is the most common concern — and it's valid. A poorly implemented RBP plan creates balance-billing nightmares for employees. A well-implemented one includes robust member advocacy, pre-service price transparency, and a direct contracting network for high-frequency providers.

Demand Benefits only recommends RBP strategies that include full member protection. We won't put your employees in a bad position to save money.

Is RBP Right for Your Group?

RBP tends to work best for self-funded employers with 50+ lives who have the risk tolerance for a different network model and the administrative infrastructure to handle occasional member advocacy cases. It's not for every group — but for the right group, it's one of the most powerful cost tools available.

Curious whether RBP makes sense for your workforce? Schedule a free strategy call and we'll tell you straight.