Reference-based Pricing vs Value Based Pricing: What Is the Difference?

Skyrocketing healthcare costs are outpacing inflation. While inflation rises at an average rate of 2-4% every year, healthcare costs are rising at rates of 3-5% in the same time period. 

These increasing costs cut into a company’s bottom line and can make it financially difficult for employers to provide affordable healthcare to their employees. This is one of many reasons so many employers are turning to alternative methods to reduce their healthcare spend and pass those savings on to employees. 

Two of these alternatives include reference-based pricing and value-based pricing. But how do you tell the difference? And which one is better for your client or organization? Read on to learn more about reference-based vs value-based pricing. 

Reference-Based Pricing vs. Value-Based Pricing 

Scrolling through search engine results for either of these phrases may lead to some confusion, due to the similarities in their definitions. In fact, they are essentially the same thing. 

One potential reason for this conflation of terms may be the cloud of negative connotations that shadows reference-based pricing. These unfavorable perceptions most likely originate with some providers who want to charge exorbitant fees for their services. Such high prices have become normalized over the years, in which traditional US healthcare models typically have fixed costs set by hospitals or providers. 

In contrast, reference- or value-based pricing offers a more flexible approach that limits what a health plan will pay for services. Some make the fine distinction of associating reference-based pricing with paying slightly more for higher quality coverage, compared to value-based pricing. In practice, however, there is no distinction between the two. Don’t be fooled: In the end, these models are one and the same. 

Why Reference-Based Pricing? 

The goal of reference-based pricing is to change the reference point of payment claims, from billed charges to a baseline set by Medicare. Some of the benefits of this model include:

• It uses evidence and aggregated data to negotiate more reasonable prices for healthcare coverage than traditional, provider-based pricing. 
• It functions as a cost-containment measure for businesses. 
• It can also increase transparency in pricing healthcare procedures. 

Instead of simply paying what providers charge without question, third-party administrators (TPAs) function as a liaison between the employer and the medical provider or facility. With reference-based pricing, TPAs use Medicare as a baseline, to negotiate lower prices directly with hospitals and doctors, creating a more transparent and affordable health plan.

6 Degrees Health for Reference-Based Pricing

Using a reference-based pricing solution, 6 Degrees Health offers employers the ability to lower their healthcare spend by up to 40% annually. Our access to Medicare claim data, coupled with our proprietary evidence-based software, gives 6 Degrees Health an edge over the competition by allowing us to negotiate from a lower rate on most procedures and charge employees what is fair and reasonable. 

As a service-first cost containment company, 6 Degrees Health can help navigate complex healthcare protocols. Speak to a representative today to find out how our reference-based pricing model can help you realize the true benefits of healthcare.