Is Reference-Based Pricing Right for Midwest Employers?

As employer health care costs continue to climb, some companies are exploring Reference-Based Pricing (RBP) as a more transparent and cost-effective alternative to traditional PPO plans.

On paper, RBP seems like a smart strategy. But as with any health care solution, the reality is more nuanced—especially for employers in provider-dense regions like our beloved St. Louis and the broader Midwest.

If you’re considering switching to a Reference Based Pricing model, here's what you need to know before you make the shift.

Not a Midwest employer? That’s ok! Read on to learn about the potential upsides (and downsides) of reference-based pricing.

What Is Reference-Based Pricing?

Reference-Based Pricing is a cost-containment strategy that replaces traditional carrier-negotiated rates with a fixed reimbursement model, often based on Medicare pricing plus a margin (e.g., 140–170% of Medicare). The goal of RBP is to:

  • Control rising health care costs

  • Increase transparency

  • Avoid inflated and variable hospital charges

With RBP, the employer (or their third-party administrator) pays providers a set rate—regardless of what’s billed.

The Potential Upside

Many employers are drawn to RBP because of its savings potential. When implemented correctly, RBP can:

·       Potentially reduce facility claims costs

·       Reduce reliance on network contracts

·       Encourage smarter, more cost-aware health plan design

·       Provide long-term cost control for self-funded plans

These benefits are especially appealing to mid-size employers looking for flexibility beyond traditional networks.

The Potential Downside

Despite its advantages, RBP is not without risks. Employers considering this strategy should carefully weigh the following:

  • Balance Billing Exposure
    Employees may receive bills for the difference between provider charges and the RBP reimbursement. While vendors often offer advocacy and legal support, the process can be stressful and time-consuming.

  • Provider Pushback
    Some hospitals or physician groups—especially in consolidated health care markets—refuse to accept RBP rates. This can lead to care access issues or require upfront payments.

  • Employee Confusion or Distrust
    RBP plans often eliminate the traditional idea of a provider network. Employees used to seeing “in-network” and “out-of-network” designations may find it confusing or feel uncertain about coverage.

  • Stop-Loss Complications
    Not all stop-loss carriers are comfortable underwriting plans with RBP. Premiums, exclusions, or administrative hurdles may be higher without a strong carrier relationship.

  • Administrative Burden on HR
    From explaining billing disputes to coordinating with legal advocates, HR teams must be prepared to handle the extra lift that RBP can bring.

Top Employer Concerns in the Midwest

While the financial upside is significant, RBP carries some important risks—particularly in markets like St. Louis, where large health systems – like BJC and Mercy, dominate the provider landscape.

Here are the top concerns:

  1. Balance Billing Risk

    Because RBP is not based on pre-negotiated contracts, some providers may bill patients for the difference between their charge and what the plan pays. This creates stress and confusion for employees and an administrative headache for HR.

  2. Provider Refusal or Disruption

    Major hospital systems may refuse RBP payments outright or demand upfront payment. This can lead to care delays, denied services, or surprise bills.

  3. Employee Frustration and Confusion

    Employees may not understand why their plan doesn't have a network—or how to handle billing disputes. Without strong education and support (like that of a Caravus Benefits Advocate) trust in the benefit plan may erode.

  4. Legal and Stop-Loss Complexity

    Not all stop-loss carriers are comfortable with RBP.

When RBP Makes Sense

RBP can work well if your organization:

  • Is self-funded and has flexibility in plan design

  • Has a well-educated HR or benefits team to manage the change

  • Partners with an RBP vendor that offers comprehensive support and legal advocacy

  • Has employees who are comfortable navigating their health care proactively

  • Operates in a region with competitive provider markets that are likely to accept reference-based rates or negotiate

When RBP Does Not Make Sense

Despite its advantages, RBP is not a fit for every employer or market. Avoid RBP—or proceed with extreme caution—if any of the following apply:

·       You operate in a dominant-provider market (e.g., BJC in St. Louis or Cleveland Clinic in Ohio), where systems are unlikely to accept RBP

·       Your HR team is stretched too thin to manage billing disputes, employee concerns, or vendor coordination

·       You don't have strong employee communication tools or buy-in for change management

·       You rely on attracting top talent with comprehensive, low-hassle benefits

·       You are not currently partnered with a vendor that offers 24/7 balance bill support and legal resources

Key Takeaways for Midwest Employers

  • RBP is not a silver bullet. It can reduce costs, but only when paired with strong vendor partnerships and an internal team prepared to handle potential disruption.

  • Know your provider landscape. Understanding which hospitals and physician groups will accept RBP is critical to avoid care access issues.

  • Educate your employees early and often. Clear, simple, and consistent communication will be the key to a successful RBP program.

  • Consider a pilot strategy before a full rollout. Some employers implement RBP only for certain claim categories (like inpatient hospital stays) as a test before a full coverage rollout.

Thinking About Implementing Reference-based Pricing?

Caravus Advisors have helped employers across the region decide if Reference-Based Pricing fits their goals—and identify the right partners to execute it successfully. If you're interested in exploring RBP or other cost containment strategies, we’re here to guide you through the options with real-world insight.

Alyssa Johnson