Reference Pricing

California hospitals bill insurers wildly different rates for hip or knee replacement.  Prices vary from a low of $15,000 to an astounding $110,000, depending on which hospital an individual chooses for the surgery.  The California Public Employees’ Retirement System (CalPers), the state’s benefits agency, in conjunction with one of its insurers, Anthem Blue Cross, a subsidiary of WellPoint, has fought back by introducing Reference Pricing for state employees. 

Under Reference Pricing, employees can reduce their out of pocket costs by electing to have a hip or knee replacement at one of 54 hospitals, including well-known Cedars-Sinai and Stanford University hospitals.  These hospitals have agreed to charge Anthem Blue Cross no more than $30,000 for the surgery, and were selected based on how many knee and hip surgeries they perform annually and surgery outcomes.  If employees choose to have the surgery performed at a hospital that charges more, the employee pays the cost difference between $30,000 and the hospital’s charge. 

Results from the first two years of the program showed that most employees who had the surgery at one of the non-participating hospitals had the same out-of-pocket costs as they did before the program as these hospitals ended up lowering their costs as a result of the program.  High priced hospitals dramatically reduced and low priced hospitals slightly reduced their prices as a result of the program. Overall costs for hip and knee surgeries fell 19 percent in the first year with no impact on quality of care.  CalPers realized $5.5 million in savings in the first two years of the program. 

A 2013 survey by benefits consultant, Towers Watson, found that 15 percent of large employers are taking a look at Reference Pricing in 2014.  WellPoint is working with the Kroger Company, a large grocery chain, to start a similar program for certain MRIs and CT scans.  “Reference Pricing works best for non-emergency medical services where the quality of care does not vary significantly,” said Dolores L. Mitchell, the GIC’s Executive Director.  The Commission has not made any decisions about reference pricing, but staff will be doing more work to see whether reference pricing on selected procedures would be a good way to lower costs without sacrificing quality.

This information provided by the Group Insurance Commission.