Reference-based pricing, without the sales pitch.
Reference-based pricing pays hospitals a set multiple of Medicare instead of a negotiated network discount. It can take real money out of a self-funded plan, and it can put one of your employees in the middle of a billing dispute. Both of those are true at the same time. We model whether it fits your group, and we will tell you when it does not. For a fully insured plan, the first step is usually a health and cost strategy built on your own claims.
What it actually is.
Strip away the branding and it is three changes to the way a claim gets paid.
The Plan Sets the Price
Instead of accepting a network’s negotiated rate, the plan pays a defined multiple of what Medicare would pay for the same service. Published programs commonly sit near 140 percent of Medicare. The multiple is a design choice, and it sets how often a hospital pushes back. Set it too low and the savings on paper turn into disputes in practice, so we look at where your own facility claims land against the proposed multiple before anyone commits to a number.
There Is No Network Behind You
Most designs drop the hospital network entirely, or keep a network for physicians and apply the reference price to facility claims. No network contract also means no negotiated protection against being billed for the difference.
A narrower version of the same idea is direct contracting and centers of excellence: buying specific procedures at a price and quality standard you set.
A repricer and an advocate sit behind every claim
An administrator reprices the bill and a member advocacy team handles the pushback. The quality of that advocacy team is the single biggest variable in whether your employees experience this as a cost strategy or as a problem. Ask each vendor how many disputes its advocates close without the member paying, and how long a typical one stays open. Get those answers in writing, because this is the part of a proposal that is easiest to oversell.
Because the underlying number is real.
The gap between what Medicare pays and what a commercial plan pays for the same service is large, published, and getting more visible every year.
The Spread Is Documented
RAND’s employer-led hospital price transparency study found private health plans paid hospitals 254 percent of what Medicare would have paid for the same services in 2022. That spread is the raw material every reference-based vendor is selling. It is a national figure, though. The gap in your market depends on which systems your people use and what your current contract already discounts, and the only way to see it is in your own claims.
Published Results Are Meaningful
A 2026 study in Health Affairs Scholar examined one national reference-based program covering roughly 300,000 lives. Inpatient claims paid 122 percent of Medicare against 240 percent for other commercial payers; outpatient paid 149 percent against 311 percent. Note that the outpatient gap is the wider one. Imaging, outpatient surgery and infusion performed in a hospital outpatient department are billed at hospital facility rates, so those claims are the first place to look when you check whether the same pattern shows up in your own data.
What That Study Does Not Claim
The authors are explicit that the analysis is descriptive rather than causal, that it is a single-year snapshot, and that it does not account for the cost of administering the program. Anyone quoting the savings number without that sentence is selling, not advising.
What the pitch leaves out.
None of these are reasons to rule it out. They are the reasons these plans fail when nobody has planned for them.
A Balance Bill Lands on Your Employee
When a hospital bills more than the plan pays, the difference is billed to the member. Someone has to make that stop, and the employee’s first call is to your HR team. If an employee pays the bill to protect their credit, the advocate has far less room to negotiate, since recovering money already paid is harder than disputing a bill. That makes the first conversation with HR the step that often decides the outcome, and it is why we build the escalation path before open enrollment, not after the first bill.
Providers Can Decline to Schedule
A hospital with no contract has no obligation to take your people for non-emergency care. In a market with one dominant system, that is not a theoretical risk. The practical test is the scheduling desk, not the contract. Before you decide, we check whether the facilities your people rely on for planned surgery, imaging and maternity will accept the plan, and what the vendor does when one says no.
The No Surprises Act was not written for this
Its protections were built around emergency care and out-of-network providers at in-network facilities. Planned care under a plan with no network is not the situation it was designed to solve. That leaves the scheduled admission, the case where reference pricing saves the most, outside the federal floor. The protection there has to come from the vendor contract and the advocacy service, so those terms are the real coverage.
Legal Defense Is a Line Item
These programs budget for defending balance bills and appeals. Ask what is included, what is excluded, and who decides when a disputed bill gets settled. The details matter: whether defense extends to a member sent to collections, whether it carries a dollar limit, and whether the vendor can settle above the reference price without asking you. The plan pays any settlement above the reference price, so those amounts belong in the cost comparison.
Stop-Loss Reprices the Change
Your stop-loss carrier will have a view on a plan with no network, and it shows up in the rate and the attachment point. Price the whole change, not only the claims line. It can mean a higher specific deductible, a gap between what the plan pays and what the stop-loss policy will reimburse, or a decline to quote. We get stop-loss terms on the new design before the savings estimate goes to leadership, so the comparison is net, not gross.
HR Absorbs the Friction
Every disputed bill is a phone call. The question is never whether they happen. It is whose desk they land on. Each one means a call with the employee, a hand-off to the advocate and follow-up until it closes. When your people call us instead, we stay on each dispute with the advocate until it is resolved, and HR gets the status rather than the workload.
When it is worth a serious look.
The answer is rarely about the employer’s size. It is about claims data, geography and appetite.
Worth Modeling
You are already self-funded and have credible claims history. Your market has a wide spread between systems rather than one that sets the price. Your people are spread across several facilities. Leadership will hold the line through the first disputed bill. And HR has the capacity to absorb the calls, or a broker who absorbs them instead.
Probably Not Yet
One health system dominates the market your people already use. You are in the first year of self-funding and still learning your own claims. A meaningful share of the population is mid-treatment on specialty or chronic care. HR is a team of one. Or this is the same year you are changing carriers, payroll or your benefits administration platform.
Things worth pricing before you price this.
Reference-based pricing is one lever. It is rarely the first one, and several of these carry far less disruption for a similar result.
A Tiered or Narrower Network
Steering toward the efficient systems you already contract with, without giving up the contract itself. Employees keep a network card and the balance-billing protection that comes with it, while lower copays or deductibles at the efficient tier do the steering. We check first whether the price gap between systems in your area is wide enough to justify the communication effort.
Direct Contracting and Centers of Excellence
A negotiated rate with named facilities for the procedures that actually drive your spend. It suits scheduled, high-cost procedures such as joint replacement or spine surgery, where price and quality can both be defined before the claim. The plan steers people there by reducing or waiving their out-of-pocket cost for that procedure, and that is what keeps the volume at the named facility.
Pharmacy, on Its Own
Specialty drug spend is where mid-market plans are losing ground fastest, and it moves without touching how anyone sees their doctor. The levers are the PBM contract terms, rebate pass-through, specialty carve-outs and how the formulary handles high-cost drugs. They can be reviewed on their own timeline, so pharmacy savings do not have to wait for a medical redesign.
Payment Integrity and Claims Auditing
Paying the correct amount under the contract you already have. Unglamorous, and it turns up money most years. Audits look for duplicate payments, billing errors and claims paid outside the contract terms, and recovered amounts go back to the plan. On a self-funded plan that money is yours, so confirm your contract gives you the right to audit claims before you need it.
Level Funding, If You Are Still Fully Insured
Self-funded up to the attachment point with stop-loss above it. It is the step that gives you your own claims data, which is what every decision after this one depends on. Depending on the contract, a good claims year can also return part of the unused claims fund. We compare a level-funded quote against your fully insured renewal on the same plan design, so the difference you see is the funding and not a benefit cut.
How we would look at it with you.
For proper coverage of an account we work in service teams of five, so the modeling, the compliance read and the day-to-day service are not the same person’s spare afternoon.
We model it against your claims, not a sample
Published averages tell you the strategy works somewhere. Your own claims tell you whether it works here. We run your facility claims through the reference price the vendor proposes, then add the vendor fee, projected settlements and the stop-loss change. The result is a net figure you can defend to leadership, including the version where it does not pay off.
We map your people against the hospitals they use
Utilization by facility, not by ZIP code. A savings projection that ignores where your employees actually go is arithmetic, not advice. We look at where planned admissions, imaging and outpatient surgery actually happened, and which of those facilities have accepted reference-based payment before. If most of your volume sits with one system that will not, the projection changes.
We read the vendor contract and the stop-loss together
Legal defense, appeal handling, settlement authority and the attachment point are one decision, not four. Read separately, each can look acceptable while the gap between them lands on the plan, for example a settlement the vendor agrees to that stop-loss will not reimburse. We line the terms up side by side and flag anything that leaves the plan holding the difference.
We Are Willing to Tell You No
We are not paid to place a particular arrangement. When the modeling says the savings will not survive the disruption, that is the recommendation. In that case we take you through the other levers on this page first, and we put the reasons in writing so leadership can revisit the question when your claims or your market change.
What this is, and what it is not.
General information, summarized from published research and public guidance, written to help you ask better questions of whoever is pitching you.
The Figures Cited Here
RAND Hospital Price Transparency Study, Round 5.1, published December 2024 on 2022 claims. Reference-based program results from Health Affairs Scholar, July 2026. Both are public and both are worth reading before a decision this size. Read them as evidence about the market, not as a forecast for your plan, because your own claims and network are what decide the outcome.
What We Are
CFH Insurance Consultants are licensed insurance brokers. We are not attorneys, and nothing here is legal advice or a recommendation for a specific arrangement. CPAs and ERISA attorneys are available to clients through us. What we can do is lay out how an arrangement works, what it costs and where it tends to go wrong, so the decision your counsel signs off on is an informed one.
The operational questions, which are the ones that decide it
Ten questions employers ask once reference-based pricing stops being a concept and starts being a plan year.
Who actually handles a balance bill when one arrives?
Someone has to, and the answer needs to be in the contract before you sign it, not discovered in March. In a working arrangement the vendor’s patient-advocacy function takes the bill, deals with the provider’s billing office and negotiates the settlement, and the member is told to forward anything they receive rather than pay it. Ask who does that work, what their turnaround is, whether they indemnify the member, and what happens if the provider will not settle. A program without a named answer to this question is not a program.
Can we apply this to only part of the plan?
Often, and it is usually the sensible way in. The common split is to reference-price facility claims – inpatient and outpatient hospital, where the mark-up is largest and most variable – while leaving professional services and pharmacy on conventional terms. That limits the number of encounters where a balance bill is even possible, concentrates the savings where the money actually is, and makes the change easier to explain to employees.
What happens in an emergency, or when someone is travelling?
Emergency care is the part that works most cleanly, because federal surprise-billing protections apply to emergency services regardless of whether the facility has a contract with your plan, and air ambulance is covered by the same rules. Non-emergency care away from home is the harder case, and it is worth asking specifically how the vendor handles a scheduled procedure out of state before anyone needs one.
Does the No Surprises Act cover our members on a plan like this?
Partly, and the boundary matters. It protects members for emergency services and for certain non-emergency care delivered by out-of-network providers at in-network facilities – but a plan without a network has fewer of those in-network facilities for that second protection to attach to. So the federal floor helps most in an emergency and helps least with the planned hospital admission that is the whole point of the strategy. That gap is what the advocacy service exists to fill.
What do we have to tell employees, and when?
More than a slide at open enrollment. People need to know before the plan year starts that the card works differently, that they should not pay a bill that arrives at home, who to call the same day one does, and that scheduling should go through the advocacy line rather than being arranged on their own. Communication is not a nice-to-have here – it is the control that keeps a balance bill from becoming an employee-relations problem.
What if a provider sends an employee to collections, or sues them?
This is the risk that has to be underwritten rather than hoped away. Ask whether the vendor’s contract commits to defending the member, who pays legal costs, and up to what limit. Some programs carry explicit legal-defense provisions and some do not, and the difference does not show up in the savings projection. You are asking your employees to trust the arrangement, so the answer should be one you are willing to say out loud at an all-hands meeting.
If it does not work, can we go back?
Yes, but not instantly and not for free. You are changing plan documents, member communications and administration, and rebuilding a network relationship you stepped away from takes a renewal cycle. That is the real argument for piloting on facility claims only, and for treating the first year as a decision you will review with evidence rather than a direction you have committed to permanently.
How will we know a year in whether it actually saved money?
Agree the measure before you start. Savings against the old allowed amounts is the number vendors present; the number that matters to you is total plan cost including the vendor fee, the advocacy cost, any settlements paid above the reference amount, and stop-loss. Track disputes per thousand claims and how long they take to close, because friction is a real cost that does not appear on the savings line. If nobody baselined those before the change, the year-one result will be unarguable in both directions.
Does this work in Michigan, where a few systems dominate?
It is exactly the question to ask, and the answer is local rather than general. The strategy depends on your employees having somewhere else to go when a system declines a scheduled procedure. In a market with genuine choice between systems that is realistic; in a region where one system is effectively the only option for an inpatient admission, the leverage runs the other way. Map where your people actually receive care before you model anything – that mapping, not the published average, is what decides it.
What does the plan document have to say?
Enough that the payment basis is unambiguous. The plan needs to define the reference amount and how it is calculated, state that amounts above it are not payable by the plan, and set out the appeal route a member has if a provider bills them. Vague language here is where disputes become expensive, and it is a question for ERISA counsel rather than for a vendor’s marketing pack. CPAs and ERISA attorneys are available to clients through us, and this is a reasonable thing to use them for.
Want this modeled on your own claims? Send us your renewal, or talk it through with someone first. No cost, no obligation.
General information about reference-based pricing, not legal or tax advice. Plan-specific questions belong with ERISA counsel, and we will bring them in.
Send us your renewal.
We’ll tell you whether it looks competitive, where we see opportunity, and the five questions we’d put to your carrier. No cost, and no obligation to move anything.
The renewal letter
Your current plan summary
Contribution split by tier
Enrolled counts by tier
Four documents — two more if your group is 50 or more. Nothing else; every extra one is a reason to postpone.
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