The Rise of Reference Based Pricing

“There’s one trend driving the CVS/Aetna merger that the industry isn’t talking about: referenced-based pricing.

By Alex Tolbert

Published February 12 2018, 12:52pm EST

The proposed merger between CVS and Aetna has made plenty of headlines, and many in the benefits industry have been theorizing which major player the two entities are trying to compete against. Is it Amazon, poised to enter the prescription business? Is it UnitedHealthcare, with its in-house pharmacy benefit manager?

Both of these giants may play a role, but there’s one trend driving the CVS/Aetna merger that the industry isn’t talking about: referenced-based pricing.

This option for self-funded employers limits costs by providing a fixed amount for certain healthcare services and negotiating directly with providers, usually through a third-party administrator.

The rise of reference-based pricing and self-insurance, especially among employers smaller than those that have traditionally employed this strategy, could be giving some insurers a bit of an existential crisis.

Why? Reference-based pricing side steps the insurance network, the principle point of value for most group insurers. If reference-based pricing diminishes the value of carrier networks, carriers will need to provide value in a new area.

One-stop shop

In that spirit, the merger with CVS would allow Aetna to position itself as a holistic health management organization, and this is how most of the industry has framed the deal – as an opportunity to create a one-stop-shop for basic care and prescription services and a continuation of the narrow network trend into the prescription drug market.

Also see: “CVS’s megadeal to change US healthcare faces stiff challenges.”

Brokers are poised to benefit from this trend. By integrating reference-based pricing strategies into their value proposition, brokers can help certain employers gain more control over their healthcare costs.

This means helping interested employers to go self-insured, which many may balk at. But through quality plan design and effective messaging, brokers can help lead the industry to a lower cost, more rational environment.

Alex Tolbert

Tolbert is the founder and CEO of benefits administration platform & HR software company BerniePortal.