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 

By Molly Mulebriar

Yesterday our office received numerous emails and calls about a recently released 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 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.



Comments on Linkedin:

Mark Flores

Mark Flores

Bill-Thanks for posting. Very astute observation, regarding the difference between Reference Based “Pricing” and Reference Based “Benefits”. Ultimately, the patient is exposed to much higher out-of-pocket liabilities due to the “moving target” benefit entitlement. Additionally, in many cases the Plan may not save much, if anything at all. Even if the plan is able to save a little bit, I am not sure these tactics will hold up under federal judicial scrutiny, (see Hi-Lex cases) particularly when BCBS relies upon “THEIR national database” and the data is proprietary, or otherwise “Non-Disclosable” to the provider, participant or Plan, as outlined in your article .

William Rusteberg

William Rusteberg

You make very good points here Mark. However, from a street view (consumer view), a plan sponsor could easily be fooled into believing Reference Based strategies (of any kind) are all essentially the same when they can be fundamentally different as is the case here. The BUCA’s have come to realize they must own the term (Reference Based Pricing) as an effective means to combat against the coming demise of managed care networks . Now BCBS salesmen can say “Oh, you like Reference Based Pricing strategies? We can do that too!”



Yes, I saw this.  From what I understand the reference point is very much a percentile of the average allowed charges or contract rates in an area.  If all reimbursements in an area are high, the “reference rate” will be higher.  If the reimbursements are low, the “reference rate” will be low.  There is absolutely no relevance to Medicare or any other determination of reasonableness.

One concerning thing is how this approach potentially creates a perverse incentive to use terribly inefficient or lower quality providers.  If I keep my rates low and the “reference rate” is higher, I may attract business even if my results are not great.  I also know that there is no “reference” on volume, so I make up my loss on more services.


Bill, I sure would like to better understand what the 50th through 90th percentiles of BCBS payment schedule as described in this piece and what it equates to in terms of Medicare.  Do you have any info/data on this?  Also, you can bet your house that BCBS does not use the criteria they describe to key health systems such as Baylor or Memorial Hermann for applying the reference rates………if they apply reference reimbursement in those system cases at all………even if the system fits the criteria perfectly in all categories mentioned.  You know they probably apply only to those they think they have leverage on.  Not on their “client health systems”.

Editor: Mulebriar is on it. She has operatives disguised as water coolers and computers strategically placed in BCBS corporate offices throughout the state.