A growing number of self-funded employers are being named in lawsuits over a cost-control strategy that promised to slash hospital bills: reference-based pricing. The plans pay hospitals a fixed multiple of Medicare rates, commonly around 140%, and treat the unpaid remainder as a dispute to be negotiated. When a hospital refuses the rate, it can sue the plan and its sponsor, and it can pursue the employee for the balance. Most of the litigation has been filed by hospitals, not by plan members.
Reference-based pricing made sense on a spreadsheet. An estimated 20-25% of healthcare spending is wasted on inflated facility charges and administrative friction. Employers watched family premiums rise 6% in 2025, outpacing the 4% growth in wages, and looked for a direct way to bypass negotiated PPO rates that were still multiples of what Medicare pays. The solution: pay Medicare-plus rates, treat the remainder as a provider problem, and let a third-party administrator handle the disputes. The problem is what happens when the disputes fail. That scenario now has a body of case law behind it, and the employer is usually the one answering for it.
The Three Fronts of RBP Litigation
Providers Sue the Plan and Its Sponsor
ERISA holds the sponsoring employer to a fiduciary standard, and hospitals have aimed that standard at reference-based pricing plans. Providers have sued employers and their administrators over ERISA violations, breach of contract, and misrepresentation, arguing that plan documents did not disclose the reference-based reimbursement or that the claims process was arbitrary. Cases such as Salinas Valley Memorial v. Envirotech Molded Products and San Antonio Regional Hospital v. MYR Group are among them, and at least one has settled. The employer is not protected because a TPA promised to negotiate. The employer chose the reimbursement model and retained the TPA, and that chain of responsibility lands at the plan sponsor's feet.
Employees Get Sued for the Balance
When negotiation fails, hospitals often turn to the employee for the unpaid balance. The first reference-based pricing balance-billing case to reach a full trial began with a heart attack: a Virginia bank employee was admitted to the hospital, and the hospital later pursued him for the difference between the bill and what the plan paid. In another case, Centura Health sued a patient for $229,112 after her plan paid $73,597 of a $303,709 surgery bill. The No Surprises Act, which took effect in 2022, bars balance billing in emergencies and at in-network facilities, but only when the plan correctly identifies the service as covered, meets the independent dispute resolution deadlines, and does not misclassify the claim. When any of those steps fails, the employee faces collection notices and a damaged credit record.
Network Adequacy and Mental Health Parity
RBP plans rarely have a contracted provider network. Without one, participants can face longer waits and higher out-of-pocket costs for behavioral health care than for physical care, which the Mental Health Parity and Addiction Equity Act is designed to prevent. A plan that cannot show comparable access risks a parity challenge. The direction of enforcement is unsettled: the 2024 final rule that would have tightened network-adequacy requirements is currently subject to a nonenforcement policy while the agencies consider changes, and the underlying statute remains in force.
The TPA Won't Absorb the Liability
A common assumption among employers was that hiring a third-party administrator to fight balance bills would shield the plan sponsor. It does not. The employer that selects a TPA keeps a duty to monitor it under ERISA, and the plan sponsor remains on the hook for how the plan it designed operates. If the TPA misses a negotiation deadline or fails to resolve a bill, the harm traces back to the reimbursement benchmark the employer set. Courts have not accepted the argument that the TPA was supposed to handle it.
Where the Risk Concentrates
Reference-based pricing risk is not spread evenly across a workforce. It concentrates where employees live in markets with one or two dominant hospital systems, because those providers have the market power to refuse the Medicare-based rate and pursue the balance through collections. In competitive markets, some vendors have negotiated direct contracts with hospitals specifically to reduce balance bills. An employer whose people are scattered across rural counties and consolidated hospital markets is carrying more litigation exposure than one whose workforce lives in a competitive urban market.
A Structural Alternative That Doesn't Depend on Repricing Claims
Reference-based pricing tries to lower costs by shrinking what providers are paid and hoping the employee doesn't get caught in the middle. That approach carries a permanent liability risk because the employer's savings depend on a fight someone else might lose.
WellthCare™ takes a different path. It works alongside the existing health plan and gets used first, providing $0-co-pay care without reducing any provider's reimbursement. Employees earn reward dollars at the WellthCare Store through verified preventive health actions, and they build retirement savings automatically. Because WellthCare never reprices a hospital claim or reduces a provider's payment, it creates no balance bills, no network adequacy questions, and no fiduciary exposure from cost-shifting. Employers still see lower claims over time, because first-dollar care happens inside WellthCare, shrinking the volume and severity of claims that reach the primary plan.
An RBP plan fights over the price of a bill after care is delivered. A benefit system that layers coverage on top of the existing plan, rather than repricing underneath it, avoids that legal war entirely while making preventive care something employees actually use.
See what a WellthCare Plan would look like for your team.
This article is for general information only and is not legal, tax, or medical advice. Employers should consult their own advisors.