Executive Summary: Network Access: Leased Networks, Reference-Based Pricing, and the Tradeoffs Nobody Explains Well
LFP-05.04 — The Operational Reality#
Most TPAs do not own provider networks. They rent access from carriers or network aggregators: MultiPlan/PHCS, First Health, Aetna Signature Administrators, Cigna network rental programs, and various regional networks. The employer’s plan members access contracted providers at the network’s negotiated rates. The TPA pays for this access through per-member-per-month fees ranging from $5 to $25 or more, or through percentage-of-savings arrangements taking 15% to 30% of the discount off billed charges. On a $50,000 hospital claim with a 50% discount, a 20% access fee is $5,000 paid to the network. This access fee reduces the effective discount the plan receives compared to what a carrier owning the network would pay. The employer should ask about effective discount after access fees, not headline discount before them.
Reference-based pricing abandons the network model entirely. The plan pays providers at a defined percentage of Medicare reimbursement, commonly 120% to 200%. No network access fees apply. The per-claim cost advantage relative to PPO network pricing can reach 20% to 40% reduction. The problem is that providers are not contracted and have no obligation to accept the reference amount as payment in full. A provider that billed $100,000, received a reference payment of $40,000, and believes they are owed more may send the member a bill for the balance. The No Surprises Act prohibits balance billing for emergency services at out-of-network facilities and non-emergency services by out-of-network providers at in-network facilities, but it does not eliminate all balance billing exposure under reference-based pricing for elective scheduled procedures with non-contracted providers.
The employer evaluating network strategy should apply three tests. Effective discount net of access fees is the correct metric, not headline discount off billed charges. Network adequacy must be measured against the specific group’s member locations, not aggregate network statistics; a national network with 500,000 providers is irrelevant if none are in the rural county where members live and work. Out-of-network claim frequency reveals whether the network fits the population: an employer should expect below 10% of total claims processed out of network for a well-functioning arrangement.
Professional services employers competing for talent generally cannot accept reference-based pricing because the member experience risk is too high relative to the talent retention stakes. Blue-collar employers with price-sensitive workforces may tolerate it if a strong patient advocacy program manages balance billing disputes on their behalf. The TPA offering reference-based pricing without active patient advocacy, balance billing resolution processes, and data on actual balance billing frequency in their book of business is offering savings without managing the consequences.