Blue Cross Blue Shield of Texas Validates Reference Based Pricing Strategies

Blue Cross has successfully hijacked the term Reference Based Pricing  –  a damn smart marketing move……………………

Special To RiskManagers.us 

By Molly Mulebriar

Last week our office received numerous emails and calls about a Blue Cross Blue Shield of Texas marketing piece entitled:

Reference Based Pricing (RBP) – A Strategy To Help You Lower Health Care Costs and Encourage Your Employees To Be More Proactive

Is it really true? Is BCBS now adopting a strategy RiskManagers.us and others adopted in 2007, over ten years ago? Since then Reference Based Pricing strategies has captured 10% market share and growing.

Could BCBS be simply reacting to market pressures, similar to when PCS came out years ago selling a nifty Rx card co-pay plan through American General and others. BCBS was late in adopting a pharmacy benefit manager program which gave them a competitive disadvantage back in those early days of PBM’s. Do they now see themselves in a competitive disadvantage in a market that is clearly embracing Reference Based Pricing strategies?

How on earth will BCBS continue to work with their provider partners, providing health care through secretive managed care contracts plan sponsors can’t see nor audit while touting an opposing claim paying methodology?

“Something smells rotten in Denmark” insisted Sara, our in-house bulldog in all things suspect. “We need to check this out!”

So we did.

BCBS has dabbled in Reference Based Pricing for a number of years, employing the strategy limited to a small set of services. The California Public Employees Retirement System  (CALPERS) program in California, through Anthem Blue Cross of California, is a good example. RBP applies to only a small number of non-emergent services such as knee replacement surgery.

BCBS identifies a distinction between Reference Based Pricing and Referenced Based Benefits. It is important to note this difference because the BCBS version of Reference Based Pricing is centered around Reference Based Benefits instead of solely pricing.

Targeting larger self-funded clients, BCBS partners with plan sponsors to determine the services that would qualify for a Reference Based Benefit structure. Once these services are identified, i.e, knee surgery, a cost variation segmentation in layered percentiles relative to a reference price is structured and provided through network providers.

To determine which services qualify for a Reference Based Benefit structure BCBS uses the following criteria:

  1. Be common with substantial volumn to establish market cost
  2. Be elective
  3. Have high price variation between providers of services
  4. Contain a facility component
  5. Represent a comparatively large percent of total spend
  6. Have low quality variation between providers

(Of special interest is #3. This is a clear indication that not all BCBS provider reimbursement schedules are the same which means providers have the ability to negotiate reimbursement terms).

In determining a reference price, BCBS relies on their national data base (data from each BCBS plan by state) that is updated every six months. Cost regions are identified by three digit zip codes.

Plan sponsors are asked to select one of five reference price percentiles with 50th the median point – 60th, 70th, 80th, and 90th percentile as plan options to be decided by plan sponsor. In no case is reference pricing set below the 50th percentile.

In their marketing manual it is noted “Reference prices are not set in any way that undermines network adequacy.”

In each geographic area where the BCBS “Reference Based Pricing” model exists among larger self-funded employer groups, BCBS endeavors to educate local providers on where they stand regarding the reference price point in relation to other providers in the area. This strategy is designed to foster a dialog between plan sponsors and local providers and to provide the opportunity for providers to become more competitive among their peers.

While we applaud BCBS for reacting appropriately to market demands, their version of Reference Based Pricing plans does not go far enough. As my niece at Planned Parenthood likes to say, “There is no such thing as being half-pregnant……….”

Branding is important to sales and is a closely guarded asset. Yet sometimes branding becomes so successful, so ingrained in consumers minds that distinguishing traits blur or even disappear. Xerox is a perfect example of branding gone rogue. “Andrea, make me a Xerox copy please, and make sure there is enough paper in our (Canon) copier.”

Thus it may prove out Blue Cross has successfully hijacked the term Reference Based Pricing – a damn smart marketing move……………………

Molly Mulebriar is an investigative reporterette from Waring, Texas and an infrequent contributor to this blog.

NOTE: This posting originally appeared on this blog in 2017. We were reminded of it recently when BCBS touted Reference Based Pricing strategies in their effort to capture a large employer group in Texas. And Captured it was…………

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