Study: Capped prices for joint replacements prompt other hospitals to follow suit

Patients guided to hospitals with lower prices for hip and knee replacement procedures prompted other hospitals to lower their prices, according to a new research brief by the Center for Studying Health System Change.

The California Public Employees Retirement System worked with Anthem Blue Cross in 2011 to negotiate a reference price of $30,000 with 45 specific hospitals, according to the study. Prices from other hospitals in California for such replacement procedures ranged from $15,000 to $110,000. Patients who went to hospitals above the $30,000 limit would have to pay the difference out of their own pockets.

The practice of imposing reference pricing has worked in other markets. The Ohio-based supermarket chain Kroger saved $4.3 million last year after imposing reference prices on pharmaceuticals.

Not long after Anthem negotiated these prices, nine other hospitals agreed to reduce their prices for knee and hip replacements, while several others agreed to waive any charges above $30,000. And a large majority of patients chose hospitals with prices in the $31,000 to $35,000 price range.

However, the survey suggested that the price shifting may have had something to do with CalPERS' purchasing clout rather than pressure placed on hospitals by lowering their prices.

"Respondents attributed hospitals' interest in renegotiating prices with Anthem or waiving amounts above $30,000 for CalPERS patients partially to CalPERS's leverage in the California market and its status as a state agency," the survey said.

"'If a small employer in Sacramento had gone to a hospital and said, 'I will only give you $30,000 for hip and knee replacements,' the hospital would have (fought back). But no hospital wants to [fight back against] CalPERS because they are so big and powerful,'" one respondent said.

The report also mentioned that some hospitals reduced their prices after orthopedic surgeons, who did not want their practices limited to certain facilities, asked them to do so.

To learn more:
- read the research brief

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