Why reference pricing may not be ready to shine

Concept is sound, but strategy still has flaws

Reference pricing appeals to insurers on a multitude of levels. It not only helps offset rising healthcare costs, but the requirements are relatively lax.

The concept may be sound, but the reality is that reference pricing raises issues regarding consumers' quality of and access to care, as well as possible discrimination against sick patients, according to a Health Affairs blog post.

The current strategy is not working. But with some improvements, the approach may prove to be effective, noted Health Affairs. Below is a summary of the current state of reference pricing and what can be done to fix it.

Real-world example

The blog post used the knee-and-hip replacement experiment used by the California Personnel Retirement System (CalPERS) as an example of reference pricing. The results spoke for themselves: (CalPERS) saved $5.5 million in two years by capping hip and knee replacement procedures, FierceHealthcare previously reported. The average price for those surgeries fell 26 percent, amounting to a $9,000-per-procedure savings.

The experiment worked--but it also raised concerns regarding quality, access, discrimination, increased administrative costs and patient confusion, as well as whether the benefits outweigh possible issues, Health Affairs noted.

For starters, "the CalPERS experiment's quality metrics were crude, limited to aggregate prospective and retrospective factors such as readmission rates, complications and infections," the authors wrote. Regarding discrimination, for example, plans may exclude certain cancer centers from their networks to discourage members with cancer from enrolling. Finally, when it comes to benefits, "reference pricing likely will have a small impact on expenditures. CalPERS saved only 0.26 percent of total expenditures, and not many plans have CalPERS' bargaining clout," the authors added.

Moving forward

Currently, it's difficult to surmise the full impact of reference pricing on the industry. Until more is known, the use of reference pricing should be limited, according to the blog post. To promote greater transparency, bundled payments should be a requirement under reference pricing so patients aren't stuck with surprise out-of-pocket bills.

In November, the Department of Labor commented on and analyzed existing regulations regarding how insurers calculate out-of-pocket costs for members who choose providers charging more than the established reference price. However, insurers worry a change in the regulation would eliminate the flexibility they have when designing plans.

For more:
- here's the Health Affairs blog post

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