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Man holding dollar sign Here’s what you need to know about reference-based pricing.

PPOs were built off the early successes of HMOs. They sought to take the savings created by HMOs and expand provider bases to allow more choice for patients. As the PPOs started to build larger networks and attempted to bring costs down, they met resistance from key providers. Rather than hold the line and set reasonable prices, the PPOs acquiesced and agreed to pay providers—especially hospitals—pretty much anything they wanted using a discount-off-the-billed-charges model.

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