Traveling Down Memory Lane

A September 21, 2011 email reminds us of how much Reference Based Pricing strategies has grown here in Texas. This email (a portion of which is shown below) is from to a client……..

RBP is a concept that is growing in Texas. To date 81 companies have adopted the model. Savings over PPO discounts are documented. However, there are few vendors managing RBP plans and the few that are charge fees they know they can get clients to pay.

These fees are as high as 12% of gross billed charges and to make the arithmetic work the reimbursement rate is necessarily set at 120% of Medicare.

One may view this as moving the bean between multiple cups. Whereas the PPO bean is under Cup A,¬† it can be converted to a RBP bean and hidden anywhere among Cups A, B or C. Or, in other words, reimbursement to medical providers is reduced and a large portion of what is diverted from the provider’s pocket ends up in the RBP vendor’s pocket.

Their strategy is to tout net savings and focus away from the fees they charge.¬†That’s a good business strategy for the short term but long term will fail as more competitors enter the market.

Few TPAs are interested in adopting the model as they don’t want to jeopardize their PPO relationships. They are more comfortable in conducting business as usual. They are risk adverse.

However, we have identified two more Texas TPAs now interested in administering these plans (RBP). One has lost seven groups to RBP this year and says he must be able to offer this strategy to remain competitive.

Now, in 2020, everyone seems to be doing Reference Based Pricing …………And vendor fees have become more competitive………….