Cost containment has rapidly become a high priority for today’s self-funded employers, who, year after year, face ever-rising healthcare costs. With health spend anticipated to grow by 8.5% from 2025 to 2026, a significant number of those employers are turning to reference-based pricing (RBP) models as a potential solution.
According to the Business Group on Health’s 2025 Employer Health Care Strategy Survey, 40% of large employers are actively exploring direct contracting or RBP hybrid models as a way to reduce skyrocketing plan costs.
But is traditional reference-based pricing truly the best option for minimizing out-of-pocket spend?
As health plans continue to innovate new cost-containment solutions for their payers and members, it’s time to evaluate the effectiveness of long-standing strategies like RBP, especially when they may be forcing unintended financial consequences on unsuspecting parties.
In this guide, Vālenz Health® dives deeper into the current state of reference-based pricing in healthcare, where it tends to fall short for self-insured employers, and why a more detailed, market-sensitive pricing model is the smarter alternative.
Reference-based pricing in healthcare is a cost-containment solution that typically uses a percentage-of-Medicare approach to price inconsistent claim costs from providers and facilities. Rather than simply accepting the rates set by providers and facilities (which can vary wildly based on factors like location and procedure), health plan payers use reference-based pricing to determine a fair, transparent pricing benchmark that all parties can be satisfied with.
In traditional RBP models, that benchmark is determined by the Medicare price for that same service, often with an additional percentage applied for a more reasonable final price — typically somewhere between 140% and 180% of Medicare costs.
RBP models have historically been a cost-containment answer to the PPO approach of providing a discount of off billed charges, which, in many cases, are grossly overinflated and rarely intended to be paid in full.
In theory, reference-based pricing sets a fair middle ground in an industry known for its high variance in pricing. It’s a model that has been embraced by states such as California, Oregon, and Montana to varying success, with the latter reporting a savings of $47.8 million between 2017 and 2019.
In addition to “traditional” RBP models based on Medicare, reference-based pricing can also be applied to:
In a perfect world, reference-based pricing could serve all parties in the healthcare system well by creating a transparent, collaborative approach to pricing models. Unfortunately, in a health system where providers are still rewarded for quantity over quality of care, traditional RBP models often fall short of their intended goals.
When assessing traditional RBP models, healthcare plan designers and payers must consider the full picture, including a few key advantages and disadvantages of this methodology.
First off, let’s discuss the most significant benefit of traditional RBP models: cost savings.
Most adopters of reference-based pricing report an average of 20% of total claims savings when compared to the PPO allowable. In addition to that, RBP models can deliver 8% to 20% savings on other costs, such as stop loss premiums, reductions on aggregate factors and, in some cases, network access fees.
Because RBP sets claims costs to publicly available Medicare rates, claims costs become more transparent and easier to predict. This, in turn, reduces the chance of hidden markups and surprise price variations, allowing for more accurate cost prediction and plan budgeting.
While reference-based pricing can create significant savings for plan payers, it's not a perfect system — and determining reference pricing isn’t always a picnic.
Using a single source of data (Medicare rates) as the basis for pricing can seem like a simple way to determine agreeable rates. However, healthcare is a famously complicated industry, with an incredible number of influencing factors affecting the price a member ultimately sees on their claim.
Reference-based pricing often leaves providers at the mercy of federal Medicare rates that may not accurately reflect the average costs of their region. These rates also don’t take care quality and patient outcomes into consideration, a critical factor in a value-based healthcare model.
As a result, RBP acceptance rates often vary by provider as these professionals seek to maximize their profit for individual procedures and services. As mentioned above, this is typically somewhere between 140% and 180% of Medicare — but as there is no set “standard” for RBP pricing, payers can (and do) frequently end up paying a higher percentage of Medicare after negotiations are complete.
Even when reference-based pricing is used by health plans, providers seeking higher reimbursement can file appeals for additional payment. Unfortunately, because the health plan has only agreed to pay a certain percentage of Medicare, those extra fees fall to the member in the form of balance billing.
Take, for example, the California Public Employees’ Retirement System, which implemented reference-based pricing for its health insurance program in 2008. Research revealed that, during the first year of the RBP model, patients paid an additional $700,000 in cost-sharing, despite the program’s overall savings of around $2.8 million. In other words, patients ended up bearing the pricing difference burden between the reference rate and the charged amount.
Sadly, this situation is too uncommon, especially among health plans who implement traditional RBP models without any additional cost-containment programs to prevent balance billing — leaving members holding the bag with higher claims costs than they had before.
In addition to the financial challenges posed by traditional reference-based pricing models, these systems can also limit members’ access to care.
When members are locked into a specific network made on RBP appeals/acceptance rates alone, they lose the flexibility to seek high-quality care at the providers of their choice. Important factors such as care outcomes, location, and schedule availability can be overlooked in favor of RBP rates, leaving members feeling “stuck” with a certain network that may not fit their personal healthcare needs.
That’s not even mentioning the fact that members with RBP in their health plan designs can be denied care by providers outside of their given network, even if that provider is the best choice for them at the time. Notably, certain providers and facilities (such as children’s hospitals) don’t use Medicare rates as part of their pricing strategy at all, restricting possible patients with RBP plans.
Finally, despite its aim to provide “fair” reimbursement rates, an RBP methodology and network can inadvertently exacerbate healthcare inequity issues for the members at the heart of the plan.
By accounting only for cost in reference-based pricing, traditional RBP models can inadvertently create higher prices in rural and underserved areas, where patients are more likely to be at a disadvantaged socioeconomic background. In the name of “fairness,” repriced claims for members in these disadvantaged areas may end up costing the same as those in higher-priced metropolitan areas, creating a higher financial burden and deepening existing inequity challenges for lower-income and non-white patients.
The good news: Plan designers don’t have to completely throw away the traditional reference-based pricing model. Innovations on that system — such as the Valenz Market-Sensitive (VMS®) repricing methodology — can preserve the original intent of RBP models while simultaneously delivering higher savings, better care outcomes, and a smoother healthcare experience for plan members.
Unlike traditional models, VMS takes into account several factors — Medicare payments, fair health outcomes, and pricing/quality transparency data — to determine fair, reasonable repricing rates for providers within a certain geographic area.
Our team aggregates years of robust claims data from provider network cases with industry-leading sources of payment-, cost-, and charge-based data sets, as well as biometrics and clinical data, to create defensible, market-sensitive rates. By taking a more robust, well-rounded view of what a “reasonable” reimbursement level is in today’s healthcare ecosystem, Valenz is able to identify the maximum savings with the lowest potential provider appeals rate — without negatively impacting the member experience.
As a result, the VMS repricing system delivers 67% average savings and a less than 1% appeal rate for our health plan clients. All appeals are handled and completely resolved in entirety by the Valenz team, reducing friction among payers, providers, and members caused by the negotiation process.
We recognize the complexity of today’s claims negotiation process, which is why our VMS repricing methodology is just one cost-containment measure in our comprehensive Out-of-Network (OON) Repricing service. In contrast to traditional repricing solutions, the Valenz model also includes:
With our comprehensive approach to high-cost, out-of-network claims repricing, Valenz is able to deliver industry-leading results for clients used to the unpredictability of traditional RBP models — such as $900,000 in savings for a single member requiring complex brain surgery.
Combined with the power of our pre-negotiation and Clinical Bill Review solutions, there’s simply no comparison. VMS delivers smarter, better, faster healthcare for our clients — without the headache of traditional reference-based pricing.
With high-cost, out-of-network claims increasingly representing an outsize percentage of today’s health benefits spend, health plan designers and payers simply cannot afford to settle for traditional reference-based pricing models anymore. The risk of inconsistently applied reimbursement rates, balance billing, and restricted care access for members is simply not worth the potential savings.
Fortunately, there is a smarter way.
With our proprietary VMS repricing methodology, Valenz delivers improved total health spend for employers, greater flexibility for members to seek high-quality care at the providers of their choice, and a reduction in provider friction when compared to traditional RBP models.
When used as part of our integrated healthcare platform, OON Repricing can help point members to providers who not only have favorable reimbursement and appeal rates but also provide the highest-quality care based on extensive data sets — a feature that’s crucially important in geographic areas where care options are limited and out-of-network charges more likely.
In short, we’re focused on delivering reimbursement recommendations that are fair, defensible, transparent, and consistent for everyone — a key step in our mission to create smarter, better, faster healthcare for all.
To learn more about our VMS repricing methodology (or to explore the savings our OON Repricing Solution can unlock for your clients), contact our team members below.