According to the Agency for Healthcare Research and Quality, the average annual family premium for a small employer health plan (under 100 lives) is more than $17,000. Facing prices like these, more employers are looking for innovative ways — such as reference-based pricing — to reduce health benefit plan expenses.

For those who haven’t heard of reference-based pricing, it is a payment methodology whereby providers are paid for covered treatments and services using a “reasonable fee” based on a reference point, such as a Medicare fee schedule. And, it’s a concept that’s gaining traction across the U.S.

Related: How to enable reference-based pricing without freaking out clients and employees

Given its increasing popularity, and the fact that it can save your smaller-sized clients valuable bottom-line health care dollars, let’s take a look at what you need to know about reference-based pricing before suggesting this payment methodology to clients:

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