Reference-Based Pricing

Reference-based pricing is a benefit design in which a health plan pays a set dollar amount for a specific procedure and treats the providers who will accept that amount as payment in full as the plan's in-network providers. The Departments of Health and Human Services, Labor and the Treasury describe it as "a reference-based pricing structure, under which the plan pays a fixed amount for a particular procedure (for example, a knee replacement), which certain providers will accept as payment in full", and say the design "aims to encourage plans to negotiate cost effective treatments with high quality providers at reduced costs".

The point of the design is what it does to the enrollee's ceiling on spending. Under the Affordable Care Act, a non-grandfathered plan must keep annual cost sharing within a statutory limit, but a plan that includes a provider network may, and is not required to, count out-of-network spending toward that limit. A plan using reference-based pricing treats providers who do not accept the reference amount as outside the network, so what an enrollee pays those providers above the reference amount does not have to advance the out-of-pocket maximum.

The legal position is a conditional enforcement posture rather than a rule, and the guidance stating it is dated 2014. In ACA Implementation FAQs Part XIX, the Departments said they were "concerned that such a pricing structure may be a subterfuge for the imposition of otherwise prohibited limitations on coverage, without ensuring access to quality care and an adequate network of providers", invited comment, and then stated the posture: "Until guidance is issued and effective, with respect to a large group market plan or self-insured group health plan that utilizes a reference-based pricing program, the Departments will not consider a plan or issuer as failing to comply with the out-of-pocket maximum requirements of PHS Act section 2707(b) because it treats providers that accept the reference amount as the only in-network providers, provided the plan uses a reasonable method to ensure that it provides adequate access to quality providers." FAQs Part XXI, issued October 10, 2014, repeated it as applying "[p]ending issuance of future guidance" and added the factors below. Writing that reference-based pricing is either lawful or unlawful misstates the position; it is permitted conditionally, by an agency undertaking that the same agencies said they may revisit.

The five factors are what "a reasonable method" means, and the Departments set them out as facts-and-circumstances considerations rather than a test with a pass mark.

Type of service. Reference-based pricing "should apply only to those services for which the period between identification of the need for care and provision of the care is long enough for consumers to make an informed choice of provider." The Departments add that limiting or excluding cost sharing from counting toward the out-of-pocket maximum "would not be considered reasonable with respect to emergency services", and note separately that a more restrictive network provision cannot be applied to emergency services at all under section 2719A of the Public Health Service Act.

Reasonable access. Plans "should have procedures to ensure that an adequate number of providers that accept the reference price are available", and are encouraged to consider state network-adequacy approaches, reasonable geographic distance measures, and whether patient wait times are reasonable.

Quality standards. An adequate number of the providers accepting the reference price should meet reasonable quality standards, with procedures to ensure it.

Exceptions process. Plans "should have an easily accessible exceptions process", under which care from a provider that does not accept the reference price is treated as though it did, where access to an accepting provider is unavailable, for example because the service cannot be obtained within a reasonable wait time or travel distance, or where quality "could be compromised with the reference price provider", the Departments giving co-morbidities and patient safety as examples.

Disclosure. Automatically, and free of charge, the plan should provide information on the pricing structure including a list of the services it applies to and the exceptions process. On request it should provide a list of providers who will accept the reference price for each service, a list of those who will accept a negotiated price above it, and information on the process and data used to ensure quality.

Two scope limits are stated in the guidance and are easy to lose. The posture addresses large group market coverage and self-insured group health plans. The Departments said they may issue further guidance relating to requirements other than section 2707(b) for non-grandfathered plans in the individual and small group markets that must provide the essential health benefit package. And compliance with section 2707(b), they said, "is not determinative of compliance with any other provision of law", naming the preventive services requirement in section 2713 and the emergency services and choice-of-professional protections in section 2719A. A plan can satisfy the cost-sharing rule and still fail somewhere else.

What the enrollee experiences when a provider does not accept the reference amount is a bill for the difference, and how that bill interacts with cost sharing and with the annual ceiling is covered under balance billing. Where the care falls within the federal surprise-billing protections, those rules govern instead of the plan's network design.

The plan publishes a reference amount for each covered procedure in the program, along with the list of providers who accept it. An enrollee who uses an accepting provider pays ordinary in-network cost sharing, which advances the deductible and the out-of-pocket maximum. An enrollee who uses a non-accepting provider is treated as having gone out of network: the plan pays its reference amount, and what the enrollee pays beyond it is not required to count toward the ceiling. The exceptions process is the release valve when no accepting provider is genuinely reachable.

A hypothetical example of the accumulator, which is the part that surprises people. Ines needs a knee replacement. Her plan's reference amount is $30,000. Hospital A accepts it, so her share is the plan's ordinary in-network cost sharing and every dollar of it moves her toward her out-of-pocket maximum. Hospital B, which her surgeon prefers, bills $52,000 and does not accept the reference amount.

If she uses Hospital B, the plan pays its $30,000 and the remaining $22,000 ($52,000 − $30,000) sits outside the arrangement entirely. The plan is not required to count it toward her out-of-pocket maximum, so reaching that ceiling later in the year does not reimburse it, and it does not shrink as her other spending accumulates.

The choice the design is built to force is therefore made months before the surgery, which is exactly why the Departments' first reasonableness factor is that reference-based pricing should apply only where there is enough time between learning care is needed and receiving it to choose a provider.

Pros

• The plan pays a stated amount for a named procedure, which is a clearer price signal than a negotiated rate nobody publishes.
• It gives a plan sponsor a tool against wide price variation for the same procedure between facilities in one market.
• The Departments' factors require an exceptions process, so an enrollee with no reachable accepting provider has a route to full credit.
• Disclosure of the pricing structure and the list of services is supposed to arrive automatically, not on request.

Cons

• Choosing a non-accepting provider leaves the enrollee owing the difference, and that amount is not required to count toward the out-of-pocket maximum.
• The design rests on a 2014 enforcement posture the Departments wrote as pending future guidance and said they would keep monitoring, so the ground can move.
• The reasonableness factors are stated as considerations rather than as a standard with a defined threshold, which makes compliance hard for an enrollee to assess from outside.
• It depends on the enrollee identifying an accepting provider before the care happens, which is only realistic for schedulable procedures.
• Satisfying the cost-sharing rule says nothing about the plan's compliance with other requirements, including preventive services and emergency care.