From the latest issue of The Journal of Healthcare Contracting:
Along with steering patients to lower-price hospitals, a California Public Employees’ Retirement System (CalPERS) reference pricing initiative motivated other hospitals to reduce prices for hip and knee replacements, according to a study by the Center for Studying Health System Change (HSC) for the National Institute for Health Care Reform (NIHCR).
CalPERS and Anthem Blue Cross in 2011 adopted reference pricing to guide enrollees in CalPERS preferred provider organizations to hospitals that provide routine hip and knee replacements below a certain price threshold. (In reference pricing, the enrollee decides whether to be treated at a lower-price provider with no out-of-pocket expense beyond typical cost sharing, or at a higher-price facility with additional cost above the reference price.)
After reviewing quality and cost information showing the hospital price for routine hip and knee replacements ranged from $15,000 to $110,000, CalPERS and Anthem set a threshold of $30,000 for hospital facility payments for both procedures, and designated certain hospitals that met certain quality standards and where enrollees could get care at or below the reference price.
Enrollees who elect to have surgery at designated hospitals pay their plans’ typical deductible and coinsurance up to the out-of-pocket maximum. Patients can go to other in-network hospitals for care but are responsible for both the typical cost sharing and all allowed amounts exceeding the $30,000 threshold.
The CalPERS program seemed to resonate with workers. In 2011, the first year of the program, the share of CalPERS patients going to designated hospitals increased to 63 percent (280 of 447 total), up from 47 percent (231 of 485 total) in 2010. What’s more, the program saved CalPERS and enrollees money – $2.8 million for CalPERS and $300,000 in cost-sharing for enrollees in 2011, without sacrificing quality.
Soon after CalPERS rolled out the reference pricing program, several non-designated hospitals renegotiated their contracted price with Anthem (for all Anthem-covered patients, not just CalPERS members) to become designated hospitals and retain CalPERS patients. Anthem’s list of designated hospitals grew from 45 to 54 hospitals by September 2012.
Also, while 37 percent of CalPERS patients went to non-designated hospitals in 2011, some respondents suggested that these were typically hospitals with prices in the $31,000-$35,000 range, rather than the $90,000-$100,000 range. Patients may have selected these hospitals because they were closer or more convenient, and they were willing to pay the additional cost.
Some non-designated hospitals that were unwilling to renegotiate their contracted price with Anthem agreed to waive amounts above $30,000 for CalPERS members to retain their business.
The study’s findings are detailed in a new HSC Research Brief – The Potential of Reference Pricing to Generate Health Care Savings: Lessons from a California Pioneer – available online at www.hschange.org/CONTENT/1397/.