Setting Price Caps on Surgeries Doesn’t Always Generate Healthcare Savings: Study

Despite successfully setting price caps on hip and knee replacements in California, reference pricing’s potential to generate healthcare savings hasn’t materialized, according to a qualitative study by the Center for Studying Health System Change (HSC) for the nonpartisan, nonprofit National Institute for Health Care Reform (NIHCR).

Realizing that hospital pricing for knee and hip replacements ranged from $15,000 to $110,000 in California, the California Public Employees’ Retirement System (CalPERS) and Anthem Blue Cross adopted in 2011 reference pricing to guide enrollees in CalPERS’ preferred provider organizations to hospitals that provide routine hip and knee replacements below a certain price threshold.

CalPERS and Anthem set a threshold of $30,000 for hospital facility payments for both procedures and designated certain hospitals that met certain quality standards and where enrollees could get care at or below the reference price. If enrollees have surgery at designated hospitals, they pay their plans’ typical deductible and coinsurance up to the out-of-pocket maximum. Patients can go to other in-network hospitals for care but are responsible for both the typical cost sharing and all allowed amounts exceeding the $30,000 threshold, which are not subject to an out-of-pocket maximum.

While previous research indicates the CalPERS reference pricing initiative saved money without sacrificing quality or shifting significant costs to enrollees, little is known about how CalPERS implemented the program and whether other purchasers could successfully replicate the approach.

According to the HSC study, the CalPERS program involved intensive communication with enrollees and met with little resistance from them. Respondents believed other purchasers could replicate reference pricing but identified challenges, including lack of price transparency, which complicates setting an appropriate reference price and estimating enrollees’ out-of-pocket costs; lack of enthusiasm from health plans leery of disrupting relationships with providers; and difficulties communicating clearly with enrollees.

The study also identified key limitations of reference pricing — specifically a limited emphasis on quality and limited potential for cost savings since reference pricing is suitable only for a narrow range of services and does not address whether utilization is appropriate.

Findings indicated that while reference pricing helps to make consumers more pricing savvy, and injects competition into hospital pricing, there are no indications that there are actual cost savings, researchers concluded.

Source: The Center for Studying Health System Change , December 5, 2013

 Aligning Value-Based Reimbursement with Physician Practice Transformation, an October 24, 2013 webinar, now available for replay

Aligning Value-Based Reimbursement with Physician Practice Transformation, an October 24, 2013 webinar, now available for replay shares the key features of WellPoint’s transformation initiative, including results from its pilot program that have led to a system-wide rollout

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