Reference pricing saves CalPERS $5.5 Million

Reference pricing--the setting of hard payment caps on procedures--saved the California Public Employees Retirement System $5.5 million in the past couple of years on hip and knee replacements surgeries, Health Data Management reported.

CalPERS worked with Anthem Blue Cross of California to set a price of $30,000 for hospital services for hip and knee replacement procedures, based on a deep analysis of available cost data. Patients who went to facilities who charged more than this amount were liable for costs above the reference price. So-called "high-value" hospitals were able to provide the procedure for $30,000 or less with good outcomes.

The use of reference pricing dropped the cost of the surgeries 26 percent between 2010 and 2012, a reduction of more than $9,000 per procedure, according to Health Data Management. Meanwhile, the proportion of patients picking high-value hospitals to undergo their surgeries rose from 50 percent in the years prior to the reference pricing initiative to 64 percent by its second year. The increase may be due to the fact that patients had an incentive to pick less-expensive facilities because they were on the hook for any costs above the $30,000, the article said.

However, hospital behavior changed as well. The more expensive facilities swiftly cut their charges an average of $42,000, down to slightly more than $27,000. As a result, CalPERS added 15 hospitals to the "high-value" list.

The Agency for Healthcare Research and Quality highlighted the program as part of its Innovations Exchange.

The use of reference pricing for some hospital procedures is becoming more popular. Earlier this month, the Obama administration okayed the use of the practice by health plans as part of their ability to negotiate prices with their provider networks. However, some studies suggested that while cutting costs, reference pricing shifts even more of a financial burden on patients, who may not have the means to cover all the costs of their care.

CalPERS has since adopted value pricing for outpatient elective cataract surgeries, colonoscopies, and arthroscopies, Health Data Management reported.

To learn more:
- read the Health Data Management article
- read the AHRQ summary