Reference Pricing: What Does It Mean to You and Your Practice?

Leslie Kim, MD; William Kumler, MD, MBA; and Alexandra Page, MD

In business, reference pricing is a term that traditionally identifies marketing and pricing strategies used by the seller. In health care, however, reference pricing is a strategy used by the payer. The similarity in both cases is that the seller or payer creates a “reference price” (RP) as a reimbursement strategy for a product.

Reference pricing has been common in the pharmaceutical industry. The following example illustrates this concept: A payer establishes the RP for a class of medications based on a relatively low-priced product in the group. The RP becomes the maximum reimbursement for any product in the group. Manufacturers may charge a price above the RP, in which case the patient must pay the surcharge.

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