Monday, June 24, 2013

Fwd: qotd: The good news on reference pricing isn't all good

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-------- Original Message --------
Subject: qotd: The good news on reference pricing isn't all good
Date: Mon, 24 Jun 2013 13:12:27 -0700
From: Don McCanne <>
To: Quote-of-the-Day <>

Press Release
June 23, 2013
CalPERS Members Had Similar to Better Outcomes at Facilities Charging
Less for Hip and Knee Replacements

A pilot program for the California Public Employees' Retirement System
lowered the price of members' hip and knee replacement surgeries by 19
percent in one year while also demonstrating similar to better outcomes
at lower-cost hospitals.

The analysis, conducted by HealthCore, WellPoint's outcomes research
company, will be presented at the AcademyHealth Annual Research Meeting
today in Baltimore. The study is based on findings for the
referenced-based purchasing design program for CalPERS members developed
by CalPERS and WellPoint's affiliated health plan in California.

As part of the CalPERS intervention program, members of the California
Public Employees' Retirement System were given a list of designated
facilities that charged less than $30,000 for in-patient costs
associated with each knee and hip replacement surgery.

To qualify for the list, hospitals had to have already contracted with
the network of WellPoint's California affiliated health plan, which
manages a robust credentialing process.

Members were able to either choose from 46 facilities on the list that
would result in them paying little to no out-of-pocket costs beyond
deductible or co-insurance or pay the difference if they used another
facility that charged more than $30,000.

The result was that CalPERS health plan costs dropped significantly – by
19 percent from $35,408 to $28,695, per surgical-related admission.


Los Angeles Times
June 13, 2013
Hospitals cut some surgery prices after CalPERS caps reimbursements
By Chad Terhune

When the California Public Employees' Retirement System told its Anthem
Blue Cross members it would pay only up to $30,000 for a knee or hip
replacement surgery, some patients shopped around for a cheaper hospital.

What may be more surprising is that about 40 higher-priced hospitals in
the state cut their surgery prices significantly to avoid losing
patients. That response accounted for about 85% of the $5.5 million
CalPERS saved over two years, researchers at UC Berkeley found, with the
rest of the savings coming from patients opting for lower-cost hospitals.

It works essentially as a reverse deductible for employees and their
families. Their employer will pay up to a certain amount for a surgery,
colonoscopy or lab test and anything above that amount comes out of the
patient's pocket.,0,6571991.story


2013 Annual Research Meeting
June 23-25, 2013
Effects of a Reference-Based Purchasing Design Program on Healthcare
Utilization and Outcomes of Knee and Hip Replacement Surgeries
Co-authors: Sze-jung Wu, HealthCore, Inc.; Michael Belman, Anthem Blue
Cross; Andrea DeVries, HealthCore, Inc.
Presenter: Chia-hsuan Li, M.S., Senior Research Analyst, Health Plan
Research, HealthCore, Inc.

Research Objective:

Controlling healthcare expenditure while ensuring the delivery of
high-quality care is a priority for payers. Recognizing the wide
discrepancies in cost for joint replacement procedures, a large employer
group in California implemented a RBPD program (Reference-Based
Purchasing Design program) beginning in 2011 for total knee replacement
(TKR) and total hip replacement (THR) based on a threshold facility
payment of $30,000. Members were given a list of designated facilities
meeting the threshold and were told that they would be responsible for
cost differences above the threshold if they chose non-designated
facilities. This study is aimed at evaluating the impact of the RBPD
program on utilization and patients' health outcomes, relative to a
comparison population.

Study Design:

A retrospective observational study was conducted using administrative
claims. We compared TKR and THR rates at RBPD-designated facilities in
the intervention group to a comparison group without the RBPD program at
baseline year (2010) and intervention year (2011). The change in average
cost per procedure was measured. We also compared postsurgery infection,
complication, and hospital readmission rates between two cohorts. The
difference in utilization and health outcomes between groups were
examined by ANOVA and chi-square tests. Multinomial logistic models were
fitted to examine the likelihood of unfavorable health outcomes between
groups adjusted for age, gender, and comorbid conditions.

Population Studied:

Adults under age 65 diagnosed with osteoarthritis and receiving a
unilateral TKR or THR. The intervention cohort consisted of members of
the employer group where the RBPD program was implemented (N=799),
whereas the comparison cohort contained individuals not covered by the
employer health plan but living in the same geographic area (N= 5,279).
Each patient was followed for 30 and 90 days following the surgery or
until their health plan eligibility ended.

Principal Findings:

Use of RBPD-designated facilities rose 21% among the intervention group
(from 45.7% in 2010 to 55.5% in 2011, p<.01) while decreasing 24% among
the comparison group (46.5% & 35.4%, p<.01). Average allowed cost (sum
of plan paid and patient out-of-pocket) decreased 20.6% for TKR (p<.01)
and 13% for THR (p=.01) for the entire intervention group. Patients in
the intervention group using RBPD-designated facilities experienced
reductions in allowed cost, so did those using non-designated
facilities. The reductions were greater for non-designated facilities
users (p<.01 both procedures). Out-of-pocket cost remained unchanged
(p>.5 both). RBPD-designated facilities were associated with lower
adjusted likelihood of 30-day general infection and complication (OR:
0.47, 95% C.I.: 0.24 – 0.94 infection; 0.68, (0.47, 0.98) complication),
and a statistical insignificant adjusted rate of 90-day hospital
readmission (1, (0.58,1.77) ).


The RBPD program increased the use of designated facilities by 21% for
the entire intervention group, achieving allowed cost reductions of 18%
per procedure while out-of-pocket cost to members remained relatively
flat. The quality was unaffected. Implications for Policy, Delivery or
Practice: Traditional cost-sharing strategies have shown little effect
on member's choice in providers, most likely because members are
insensitive to procedure costs and unaware of cost variation. RBPD
addresses these barriers. This study suggests that a RBPD program can
engage members to choose high-value services with lower cost but
unaffected quality.

Funding Source(s): WellPoint, Inc.

AcademyHealth Podium Presentation Abstracts (page 33 for this report):

Comment: Reference pricing controls spending by setting a price near
the low end of market prices for a given health care service or bundled
service, and then requiring the patient to pay any amount over the
reference price. It is a reversal of charging the patient a deductible,
in that the patient pays any excess at the top, rather than a set amount
at the bottom. It is a form of defined contribution, and as such could
expose the patient to potentially much higher costs above the reference

California Public Employees' Retirement System (CalPERS) and WellPoint's
Anthem Blue Cross joined together in this pilot program on reference
pricing. Prices for the services covered were reduced - 13% for total
hip replacement and and 21 percent for total knee replacement - and
out-of-pocket costs did not change for patients. It worked. Facilities
reduced their prices to reference levels, and patients used facilities
that adhered to reference prices, and therefore they were not penalized

The primary trade off appeared to be that 21 percent of patients
switched to facilities that were not their initial choices. This has a
potential of disrupting established, integrated care patterns, though
this was not evaluated in the study. An example might be of a reference
price for diagnostic imaging that is available only in an institution
not associated with your usual sources of care, leading you to either
disrupt your care or suffer higher out-of-pocket spending.

There also can be a problem establishing a reference price. The insurer
may set a price available only in distant urban regions - a price that
is not available in your community. You could have a $50,000 procedure
that might cost you $1,000 under a high-deductible PPO, but have a price
of $30,000 under reference pricing, leaving you stuck with a bill of
$20,000 if you find that a reference-based institution is not readily
accessible. Reference pricing is not a perfect solution.

There is a much more fundamental problem with reference pricing that is
not so obvious. In a September 2012 Health Affairs article on reference
pricing (in centers of excellence), James Robinson and Kimberly
MacPherson write, "Both reference pricing and centers-of-excellence
contracting can be used by Medicare Advantage health plans because they
have the ability to impose differential cost-sharing requirements and
exclude providers altogether from their contractual networks. However,
the new benefit designs will be applicable to traditional Medicare only
if the program becomes willing and able to use consumer cost sharing to
channel patients to particular providers based on quality and efficiency."

From this comment, it is obvious that reference pricing is a creation
of those who believe that the consumer (patient) should be in charge of
making purchasing decisions based on price. It is the obsession of the
policy community with this market concept of health care purchasing that
has led to the highly dysfunctional, egregiously expensive, and poorly
allocated health care system that we have today.

Think about it. The traditional Medicare program has been far more
effective than the private insurers at getting health care priced
appropriately, and yet they say that we should abandon that approach and
"use consumer cost sharing to channel patients." That is, we should
shift risk to the patients - exposing them to financial penalties should
they not make perfect decisions in their health care purchasing, even as
the private insurers create yet more barriers to perfectly priced health

Forget reference pricing. Let's let our public administrators obtain the
best value for us through global budgeting of our hospitals and
negotiated rates for professional services and products, as we would
have with a single payer system. A "reference price" wouldn't make any
sense in such a logical system. There would be only one price, paid by
our public administrator, based on legitimate costs and fair margins.

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