Montana’s Experiment with Reference-Based Pricing

From Benefitspro:

To cut its health costs, Montana implemented a reference-based pricing model with its 60 hospitals, which accounted for 43 percent of employee health care costs.

Instead of starting with the hospital’s list price and negotiating down for discounts, the state began telling these facilities how much it was willing to pay — a “reference price” — for each type of hospitalization. State officials used generally conservative Medicare rates as a baseline and starting point for the discussion.

While other states and some private employers have set prices they are willing to pay for some standardized procedures — such as colonoscopies or hip replacements — Montana’s experiment is more sweeping, covering all hospital services, and it uses Medicare as a common yardstick.

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