CalPERS’ ‘Reference Pricing’ Initiative Saves $5.5M Over Two Years

CalPERS saved more than five million dollars through an initiative that set standard prices for knee and hip replacements and prompted beneficiaries to select higher-value hospitals for the procedures, Health Data Management reports (Goth, Health Data Management, 5/23).

Background

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 meet a certain cost threshold. The program set a maximum of $30,000.

Forty-six medical institutions -- including Stanford and UC-San Francisco -- initially were included in the plan (California Healthline, 12/9/13).

Growth of Program

Since its launch, the reference pricing initiative has been expanded to include:

Arthroscopy procedures;
Colonoscopies; and
Outpatient elective cataract surgeries.

In addition, 15 more hospitals were added to the initiative and met the quality and volume requirements to be named high-value facilities.

Details of Cost Savings

The number of Anthem-CalPERS enrollees who chose a designated high-value hospital for their knee or hip replacement surgeries increased from 50% between 2008 and 2010 to 64% in the first nine months of 2012, compared with little to no change among Anthem policyholders not enrolled in CalPERS.

In addition, the average price for such procedures fell from more than $42,000 before the initiative to $27,148 in the first nine months of 2012.

The changes resulted in a savings of about $5.5 million during the first two years of the reference pricing initiative, and the average cost to CalPERS for the procedures fell by 26%. The savings resulted from:

Lowering costs by hospitals, which accounted for 86% of savings; and
Enrollees opting for high-value hospitals over low-value facilities (Health Data Management, 5/23).

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