Healthcare costs continue to climb, and self-funded employers are looking harder than ever at strategies that deliver meaningful savings without compromising the member experience. Reference-based pricing (RBP) has become one of the most discussed options in that conversation, and one of the most misunderstood. RBP is a healthcare payment model where a self-funded health plan pays providers based on a transparent benchmark, most commonly a percentage of Medicare reimbursement rates, rather than negotiated network discounts. The result can be substantial cost reductions on hospital and facility claims. The catch is that RBP introduces operational complexity that traditional Preferred Provider Organization (PPO) networks do not, and employers who treat it as a plug-and-play solution often run into problems that erode the early savings.
This article walks through how RBP works, what self-funded employers gain and give up by adopting it, the operational realities that determine whether a program succeeds or stalls and what to expect when transitioning from a traditional network to an RBP model.
How Reference-Based Pricing Works
Traditional PPO networks operate on what the industry calls a discounting-down model. Hospitals start with their chargemaster price, which is essentially a list price set by the facility, and the insurance carrier negotiates a discount from that number. A 50 or 60 percent discount sounds significant, but the chargemaster price is largely arbitrary, and the discounted rate often still lands far above what the service actually costs to deliver.
Reference-based pricing inverts that approach. Instead of discounting down from an inflated starting point, the plan builds up from an objective benchmark. The most common benchmark is the Medicare fee schedule, since Medicare rates are publicly available and reflect what the federal government has determined to be a reasonable payment for a given service. A self-funded plan using RBP might pay 140 or 150 percent of Medicare for hospital facility services, which still gives the provider a margin above their actual cost while keeping the plan’s spend grounded in something verifiable.
Here’s a simplified example. A traditional PPO might pay roughly $30,000 for an inpatient procedure after applying a discount to a $60,000 chargemaster price. The same procedure under an RBP plan paying 150 percent of Medicare might come in closer to $12,000. According to the RAND Corporation’s hospital price transparency research, commercial plans pay an average of 254 percent of Medicare for hospital services, which gives some sense of how much room exists between traditional pricing and a defensible RBP benchmark.
RBP Is a Methodology, Not a Plan Type
One source of confusion worth clearing up early: RBP is a payment methodology, not an insurance product. Employers don’t buy RBP the way they buy a PPO plan. They build RBP into a self-funded plan design and partner with a third-party administrator (TPA) to administer it.
Most RBP programs apply the methodology to facility-based claims (hospitals, outpatient surgery centers, imaging facilities) where pricing variation is largest. Professional fees from providers are often still paid through a traditional network, since those services typically don’t carry the same level of price inflation. This hybrid approach is common and helps reduce member friction since most outpatient and primary care visits look and feel like a normal in-network experience.
Why Self-Funded Employers Are Considering RBP
The case for RBP centers on three things: cost savings, transparency, and control. Industry data suggests that employers who implement RBP programs see hospital and facility claim costs drop significantly compared to traditional PPO arrangements, with total plan savings frequently reported in the 20 to 30 percent range. Sources like Imagine360 and AHealthcareZ report savings in this range, though actual results vary considerably based on plan design, member geography, and program execution.
Beyond the dollar savings, RBP gives employers something traditional networks rarely offer: visibility into what their plan is actually paying and why. Plan sponsors can see the math behind every claim, defend pricing decisions with public benchmark data, and forecast costs with more confidence year over year.
RBP fits naturally into the broader case for self-funded health plans, where employers already accept the financial risk of paying claims directly in exchange for greater plan flexibility and access to claims data. For organizations that have committed to self-funding as a long-term cost containment strategy, RBP represents one of the more powerful levers available.
That said, RBP is not a fit for every self-funded employer. The savings come with operational tradeoffs that can be significant if not anticipated and managed.
The Operational Realities of Running an RBP Program
This is where most RBP conversations get either oversimplified or skipped entirely. Vendors selling RBP programs tend to lead with savings numbers and minimize the operational lift. Employers who get blindsided by these realities are the ones who end up unwinding their RBP programs within a year or two.
Balance Billing
Balance billing is the single most discussed challenge in RBP. When a provider doesn’t have a contract with the plan, they can bill the member for the difference between their charge and what the plan paid. If a hospital bills $80,000 for a procedure and the plan pays $20,000 under RBP, the provider may attempt to collect the remaining $60,000 from the member.
In practice, balance billing happens in a minority of RBP claims, but when it does happen, it can create significant member distress. The exposure is real, and members who receive balance bills typically have no idea what to do with them. Strong RBP programs build in member advocacy services that step in immediately when a balance bill arrives, negotiate directly with the provider’s billing office, and resolve the bill on the member’s behalf. Without that infrastructure, the employer is effectively asking employees to negotiate with hospital collection departments on their own, which is not a sustainable approach.
Provider Pushback
Hospitals respond to RBP in different ways. Some accept the payment as offered and move on. Others negotiate a contracted rate above the RBP benchmark, which still represents savings compared to traditional PPO pricing. A third group resists, either by aggressively pursuing balance bills, refusing to schedule care, or in rare cases pursuing legal action against the plan.
Large hospital systems in concentrated markets are most likely to push back. A single dominant health system in a metro area has more leverage to refuse RBP terms than a smaller community hospital that needs the patient volume. This is why RBP results vary so much by geography, and why a program that works smoothly for an employer in one region may struggle in another.
What to Expect When Transitioning from Traditional Network Pricing to RBP
Most existing self-funded employers move to RBP from a traditional PPO arrangement. The transition is not just a pricing change. It’s a change in how members experience the plan, how claims are processed, and how the plan responds when issues arise. Setting accurate expectations with leadership and HR is the difference between a successful rollout and a program that gets blamed for every member complaint in year one.
The First 90 Days
The earliest months are typically quiet. Most members don’t engage with the plan in any given month, so the change is invisible to them until they need care. During this period, the plan’s administrator should be confirming that claims are being repriced correctly, that provider data is flowing cleanly, and that member-facing materials accurately explain the new model.
Months 3 Through 12
This is when issues start to surface. The first balance bills appear. Members who need scheduled procedures begin running into pre-authorization conversations that look different from what they’re used to. HR teams start receiving questions they don’t have ready answers for. The quality of the TPA relationship matters most here, because every unresolved member issue becomes a referendum on the program.
Employers should expect a noticeable increase in HR and benefits team workload during this period, particularly around member questions and provider escalations. Budgeting for that capacity, either internally or through the TPA’s member advocacy services, prevents the program from feeling unmanageable.
Year Two and Beyond
By the second plan year, most members have either had a positive experience with the plan or learned how to navigate it. Provider relationships in the local market have stabilized, with some hospitals signing direct contracts and others continuing to operate under the RBP framework. Claims data starts to show the savings clearly, and the plan can begin making informed adjustments to benchmarks, advocacy programs and plan design based on actual experience.
How to Set Up an RBP Program for Success
The employers who get the most out of RBP treat it as a plan design decision, not a vendor decision. The structural pieces below are what separate programs that deliver promised savings from programs that deliver headaches.
Plan Document Language
The plan document is the legal foundation of the RBP program. It must clearly state the payment methodology, the benchmark used, the percentage of that benchmark the plan will pay, and the procedures for handling disputed claims. Vague or generic plan language is one of the most common reasons RBP programs fail when challenged by providers.
TPA Selection
Not every TPA can administer RBP well. The infrastructure required (claims repricing, provider negotiation, member advocacy, escalation pathways, plan document expertise) is significantly more involved than processing in-network claims. Employers evaluating TPAs should ask specifically about RBP claim volumes, balance billing resolution rates, and how the TPA handles provider disputes that escalate beyond initial negotiation.
Member Communication
How the program is introduced to members shapes how they respond to it. Communications should be clear about what’s changing, why, what members can expect when they need care, and exactly who to call when they have questions. Setting realistic expectations on the front end prevents the program from being defined by the first surprise bill that lands in an inbox.
Frequently Asked Questions
Is reference-based pricing the same as self-funding?
No. Self-funding is the underlying plan structure where the employer pays claims directly rather than paying premiums to an insurance carrier. RBP is a payment methodology that can be added to a self-funded plan to control how much the plan pays for specific claims. Most RBP programs are built into self-funded plans, but employers can self-fund without using RBP, and the two decisions are separate.
How much can employers actually save with RBP?
Reported savings vary widely. Industry sources commonly cite total plan savings in the 20 to 30 percent range, with hospital and facility claim costs sometimes reduced by 40 percent or more. Actual savings depend on plan design, member geography, the benchmark percentage chosen, and how aggressively the program is administered. Employers should be skeptical of any vendor that promises specific savings without first understanding the plan’s claims history and member population.
What happens if a provider refuses to accept the RBP payment?
Providers can refuse the payment and bill the member for the balance. Strong RBP programs have negotiation and advocacy infrastructure that engages with the provider on the member’s behalf, often resolving the bill at or near the original RBP payment amount. In rare cases, disputes escalate to legal action, which is why plan document language and TPA expertise matter so much.
Does RBP require a separate provider network?
Most RBP programs do not use a network in the traditional sense. Members are free to see any provider, and the plan pays the RBP benchmark regardless of where care is received. Some hybrid programs combine RBP for facility claims with a traditional PPO network for professional fees, which gives members the convenience of an in-network experience for most routine care while applying RBP to the higher-cost facility claims where the savings opportunity is largest.
How does reference-based pricing affect stop-loss insurance?
Stop-loss carriers evaluate RBP programs carefully because the payment methodology affects their risk exposure. Some carriers are well-versed in RBP and underwrite these plans without issue. Others charge higher premiums or attach conditions to coverage. Employers should involve their stop-loss carrier early in the RBP design process to confirm coverage terms and avoid surprises at renewal.
How long does it take to implement an RBP program?
A well-managed RBP implementation typically takes three to six months from decision to effective date. That window allows time for plan document drafting, TPA setup, member communications, and stop-loss coordination. Compressed timelines are possible but tend to create friction in year one when issues that could have been addressed during planning surface in real time.
The Right Partner Makes the Difference
Reference-based pricing is one of the most effective cost containment strategies available to self-funded employers, but it works only when the program is built and administered with the operational realities in mind. The savings are real. The disruption is also real. Employers who succeed with RBP do so by partnering with a TPA that has the infrastructure, experience, and member advocacy depth to handle the complications that come with the model.
BHPS works with self-funded employers to design and administer reference-based pricing programs that deliver durable savings without creating member or legal fallout. If you’re evaluating RBP as part of your cost containment strategy, connect with our team to talk through what a program designed for your population could look like.