Reference Pricing and Bundled Payments

Reference Pricing and Bundled Payments

A Match to Change Markets

As the costs of health care continue to increase, employers are turning to innovations in health care payment, benefit design, and network design to manage their costs. One reform that has gotten recent attention is reference pricing. Yet when used alone, this strategy has some limitations. Coupling a reference pricing strategy with a bundled payment to providers for the entire episode of care could make pricing easier and create alignment among consumers, employers, and providers in a number of ways. First, this approach is easier for consumers to understand, limits their financial liability, and allows for greater price and quality transparency. Second, it improves cost predictability for employers because they will pay a consistent bundled price that does not vary based on the services rendered. Third, providers have more accountability for defined outcomes and are financially liable for costs above the defined bundled price, creating a focus on delivering the highest quality, most efficient care.

This paper discusses how reference pricing can be successfully paired with bundled payment to create the alignment described above. First we begin with a look at an employer and a purchaser using a reference pricing strategy today.

Health Care Incentives Improvement Institute (HCI3) is a non-profit organization, guided by a Board of Directors that includes physicians, employers, health plans, and others. We have created a broad range of programs to measure health outcomes; reduce preventable care defects; promote a team-based approach to caring for patients; realign provider payment incentives around quality and reward excellence wherever we find it. For more HCI3 information and resources, please visit

Catalyst for Payment Reform (CPR) is an independent, non-profit corporation working on behalf of large employers and other health care purchasers to catalyze improvements in how we pay for health services and to promote better and higher-value care in the U.S. For more CPR information and resources, please visit