CalPERS Initiative Shows Potential of Reference Pricing Programs
A CalPERS program that saved more than $5 million over two years by capping knee and hip replacement prices shows the potential of reference pricing initiatives to save money without sacrificing care quality, according to a blog post in Health Affairs, FierceHealthPayer reports (Zweig, FierceHealthPayer, 7/7).
Background on CalPERS Initiative
In 2011, CalPERS began reference pricing, which establishes a standard price for a medication, procedure or service and requires members to pay any charges beyond that price.
For the program, CalPERS asked its PPO, Anthem Blue Cross, to research the average costs for hip and knee replacements among hospitals and develop a program that ensures sufficient coverage by those hospitals that meets a certain cost threshold. The program set a maximum cost of $30,000.
The program also prompted beneficiaries to select higher-value hospitals for the procedures (California Healthline, 5/28).
CalPERS has saved $5.5 million through the initiative (FierceHealthPayer, 7/7).
The number of hospitals included in the plan increased from 46 when it was launched in 2011 to 72 this year (Boynton/Robinson, Health Affairs, 7/7). In addition, the program has been expanded to include:
- Arthroscopy procedures;
- Colonoscopies; and
- Outpatient elective cataract surgeries (California Healthline, 5/28).
Details of Blog Post
The Health Affairs blog post was written by Ann Boynton, deputy executive officer of benefit programs policy and planning at CalPERS, and James Robinson, a professor of health economics and director of the UC-Berkeley's Center for Health Technology.
The authors pointed to the CalPERS initiative as an example of how reference pricing can address "the wide variation in the prices charged for similar services across the health care sector" that result from market consolidation or regulations deterring new providers from entering the market.
For example, prices for joint replacement surgery ranged from $12,000 to $75,000 for CalPERS before the reference pricing program was implemented.
After the program was in place, consumers shifted toward lower-cost health care providers for ambulatory and inpatient surgeries.
"These changes in consumer choices result in reductions in prices and payments," the authors wrote, adding, "Well-constructed reference pricing offers meaningful choices to consumers and savings to purchasers, with no sacrifice of quality" (Health Affairs, 7/7).
Limits to Reference Pricing
The authors noted that there are several limits to how reference pricing programs should be used.
For instance, reference pricing should be used in conjunction with incentives provided through insurers and providers, rather than as a substitute to such incentives, they wrote.
Boynton and Robinson also noted that reference pricing should only be used for "shoppable" procedures -- not emergencies. For example, the CalPERS initiative did not include surgery to fix a failed joint replacement (FierceHealthPayer, 7/7).
In addition, CalPERS offers exceptions to the referencing pricing program when:
- A patient lives 50 miles or farther from a facility included in the program; and
- A physician provides clinical justification for using a higher-priced facility (Health Affairs, 7/7).