The August 2013 issue of Health Affairs had a fascinating analysis of the impact of reference pricing on the use of and prices paid for knee and hip replacement surgery. The authors, James Robinson and Timothy Brown, both affiliated with UC Berkeley, compared usage and procedure price data for the California Public Employees’ Retirement System (CalPERS), which started using reference pricing in January 2011, with data for Anthem Blue Cross, which does not use reference pricing and served as a comparison group. The period studied was 2008 to 2012.
CalPERS identified 41 value-based purchasing design (VBPD) facilities, that is, facilities that satisfied the following criteria: (i) procedure prices were less than $30,000 (for the hospital’s allowed charges only, not including physicians’ fees, but such fees were found to show little variation and thus were not a primary focus of the study), (ii) quality was acceptable and (iii) the group of hospitals provided sufficient geographic dispersion. Employees selecting a VBPD hospital still had to pay 20 percent in co-insurance, up to $30,000, but if they selected a non-VBPD hospital they also had to pay the amount in excess of the $30,000 threshold.
The authors reach the following conclusions:
- “In the first year after implementation, surgical volumes for CalPERS members increased by 21.2 percent at low-price facilities and decreased by 34.4 percent at high-price facilities.”
- “Prices charged to CalPERS members declined by 5.6 percent at low-price facilities and by 34.3 percent at high-price facilities.” Specifically, “the average price charged by non-VBPD facilities as a group declined dramatically, from $43,308 in 2010 to $28,465 in 2011.”
- “There was substantial variability across individual hospitals in their pricing strategies after the implementation of reference pricing. Almost half of the hospitals not designated as VBPD by CalPERS… continued to increase prices in 2011, while half reduced their prices. However, the average price reduction was more than twice as large for the facilities that reduced prices ($11,048 per patient) as the average price increase for those that increased prices ($4,097).”
- “In 2011 reference pricing accounted for $2.8 million in savings for CalPERS and $0.3 million in lower cost sharing for CalPERS members.”
The authors do raise the question, at the end of their paper, of “whether the observed reductions in prices for knee and hip replacements were offset by price increases for other services,” although interviews with CalPERS and Anthem staff suggested they had not. The price trends may also be modified as time goes by. Price data should be gathered for longer periods of time to truly ascertain the impact of reference pricing. But it is undeniable that this cost-sharing method (identifying high-value hospitals but letting plan enrollees choose any hospital provided that they are willing to shoulder the cost difference) has significant potential and holds more promise than high-deductible plans, which unwittingly incentivize not receiving preventive care.
I found this article highly informative and well-written, and highly recommend it to anyone interested in reference pricing.
Comments