Reference pricing saves insurers, patients money


Michael Belman, M.D., has witnessed firsthand the benefits of reference pricing. When he had cataract surgery in Los Angeles he found a variation in prices ranging from $3,500 to $11,000. 

By taking the time to learn about prices, Belman was able to save himself out-of-pocket costs and provide savings to his insurance provider. Those savings will mean members will spend less money in the future through the trickle-down effect.

"This is a direct impact for all of us," said Belman, who also serves as the regional vice president and medical director for clinical programs and innovations at Anthem Blue Cross in California. He was one of the Alliance Health Reform's panelists (pictured above)  on Monday who discussed reference pricing and whether price caps will help contain healthcare costs.

Reference pricing, a relatively new model in the American healthcare industry, establishes a standard price for a drug, procedure, service or bundle service, and usually requires health plan members pay any charges beyond the set amount. Panelist shared information, first-hand knowledge and studies that showed reference pricing for routine procedures and prescriptions expanded the transparency of medical prices without reducing the quality of care. It also gives purchasers and members the opportunity to make choices that reduce costs, they said.

Belman shared Anthem Blue Cross' valued-based purchasing design for hip and knee replacements, which showed the cost for the hospital portion ranged from $15,000-$110,000 with very little difference in quality in the California commercial preferred provider organization population. Anthem set a reference price of $30,000, which resulted in a shift of members to designated hospitals, a 17.9 percent decrease in total cost for a joint replacement, as well as a reduced rate of general infections in designated hospitals.

A Center for Innovation at California Public Employees' Retirement System (CalPERS) study found its hip and knee replacement reference pricing program meant a $5.5 million savings over the first two years of its existence, with the average price charged for a joint replacement dropping 26 percent, more than $9,000 per procedure, said panelist David Cowling, chief of CalPERS.

The Cincinnati-based retailer Kroger Co. experienced a $4.3 million in company savings in 2012 after implementing reference pricing for prescription medication, and has seen $1.7 million in savings so far this year, according to panelist Theresa Monti, vice president of corporate total rewards. The only concern the company experienced with reference pricing, she said, was monitoring members' adherence prescriptions to make sure people didn't stop buying medication because of cost.

Panelists also addressed criticism that reference pricing too drastically effects the market a whole. The measure shines a spotlight on price variation, sending the message into the market that the practice is no longer tolerable. Shifts in volume will also result in behavior changes, panalists agreed.

Reference pricing brings healthcare consumers into the equation and can exert pressure on high-cost providers to lower their pricesFierceHealthcare previously reported.

To learn more:
- check out the briefing summary

Related Articles:
Price variations hurt consumer-driven healthcare
Price transparency barriers remain
Health comparison-shopping on the rise
Major employer group launches two new initiatives to reform health care using payment policies
Lilly CEO blasts Europe's drug-pricing moves