The move by some employer plans to a “reference-based” pricing model has created a need for healthcare providers to develop a strategy to confront payment challenges that these plans create. A prevalent model of reference-based plan in use in many national markets employs a Medicare-based reimbursement formula with no network of providers. The key promoters of these plan structures include reference-based pricing vendors, third party administrators (TPAs) and brokers. The sales pitch that these promoters of reference-based plans use is that the payment levels provide a way to beat back healthcare costs. Secondarily, the plans are promoted as flexible enough to allow members to take the “coverage” to any provider they wish. As one large regional payer said in marketing a reference-based individual product:

myChoice reimburses customers directly for medical procedures at rates that are up to 40 percent higher than what the doctor or hospital would receive for providing the exact same services to a patient on Medicare (i.e., 140 percent of Medicare rates). There are no restrictions on which providers a customer can see.

The employers who have decided to adopt these types of plans are often small to medium sized self-funded employers. Most reference-based plans are not state-regulated insurance.

Despite a vacuum in state law to address reference-based plans, the Affordable Care Act does create some regulatory overlay, however, particularly as it relates to ACA plans’ obligations to limit members’ exposure to a maximum out of pocket (MOOP) amount on in-network services. (Section 2707(b) of the Public Health Service Act required that member annual cost sharing that the plan imposes not exceed limits provided under section 1302(c)(1) of the ACA. Beginning January 1, 2019, the annual limitation on an individual’s MOOP costs is set at $7,900 for self-only coverage.)

The possibility of reference-based plans violating these MOOP limitations that the ACA imposed provides one vehicle for potential legal challenge to these plans’ payment structure. If the plan fails to ensure that an adequate number of providers are available who are willing to accept the reference-based pricing, the plan may be violating the Department of Labor’s guidance on access. Assuming this is the case, the plan would have to count an individual’s out of pocket expenses for providers who do not accept the reference price toward the individual’s MOOP limit for providers who are not in-network. Moreover, an argument exists that a plan is not really using a reference-based pricing structure when the plan is not actually referencing a price that an adequate number of providers have agreed to accept through in-network contracts.

In analyzing the interplay between MOOP and reference-based plans, the Department of Labor has noted that compliance with MOOP requirements is closely connected with whether such plans are offering the coverage that an ACA-compliant plan is required to offer. For example, the Department of Labor has expressed “concerns that such a [reference-based] pricing structure could be a subterfuge for the imposition of otherwise prohibited limitations on coverage, without ensuring access to quality care and an adequate network of providers.” See DOL, Affordable Care Act Implementation FAQs (Part XXI), Oct. 10, 2014, available at For example, a price could be set so low that no providers in the geographic area will accept it as full payment for the service provided and patients are exposed to balance billing. The misuse of reference-based pricing can be the result of an attempt by plans to get around the MOOP limit.

Another key legal issue that King & Spalding has addressed in dealing with reference-based plans is whether a payment from a TPA on behalf of a reference-based plan that is marked as “payment in full” or with other similar language can be interpreted as a binding settlement (an “accord and satisfaction”). This issue comes down to state law on whether one party can bind another party to a settlement for less than the full invoice by marking payments with language that suggests that one party views the payment as full satisfaction of the debt. State laws vary on this point, but we have identified methods to address this type of practice, particularly in states that have enacted the Uniform Commercial Code.

The extent of reference-based pricing penetration in the market creates the need for healthcare providers to develop a plan to address instances where patients present with these plans. The following are steps we recommend:

  • Determine whether to treat patients with reference-based plans as insured or self-pay;

  • Develop a list of known reference-based payers and make it available to patient accounts staff;

  • Develop a flow chart or work plan for patient accounts staff to use when patients with reference-based coverage present to your facility;

  • Evaluate your assignment of benefits language and the extent to which it supports or counters the argument reference-based plans typically make that, by accepting assignment, the provider has accepted the reference-based rate;

  • Dialogue with employers who have adopted reference-based plans. Many employers do not realize when they implement these plans the extent to which they leave the employees exposed – both to balance billing and to healthcare providers who will not accept their coverage / insurance cards outside of an emergency setting.