Reference-Pricing Policy for Hip/Knee Replacements Generates Significant Savings by Encouraging Enrollees To Choose High-Value Facilities | AHRQ Innovations Exchange

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Reference-Pricing Policy for Hip/Knee Replacements Generates Significant Savings by Encouraging Enrollees To Choose High-Value Facilities | AHRQ Innovations Exchange

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• Reference-Pricing Policy for Hip/Knee Replacements Generates Significant Savings

Reference-Pricing Policy for Hip/Knee Replacements Generates Significant Savings by Encouraging Enrollees To Choose High-Value Facilities

Snapshot

Summary In collaboration with Anthem Blue Cross, the California Public Employees’ Retirement System (more commonly referred to as CalPERS) changed the benefit design for its self-funded preferred provider organizations to incorporate a “reference-pricing” policy that covers the facility fees for elective hip and knee procedures (fees that historically had varied widely within geographic regions). CalPERS later extended the policy to outpatient elective cataract surgeries, colonoscopies, and arthroscopy procedures. For each procedure, CalPERS sets a maximum allowable charge (the reference price) at a level that ensures enrollee access to an array of high-quality, low-price providers. Enrollees who choose providers offering a price below the threshold pay according to the plan’s traditional cost-sharing formula. Those who choose a higher priced provider pay this amount, plus the full difference between the hospital price and reference price. To inform their choice for hip and knee replacements, enrollees receive a list of hospitals designated as “high-value” providers that meet established quality criteria and charge at or below the reference price. For the other procedures, enrollees are directed to participating ambulatory surgery centers, unless the physician requests that the surgery be performed at a hospital outpatient facility. For hip and knee replacement surgery, the reference-pricing policy significantly increased the proportion of enrollees choosing high-quality, low-price (i.e., high-value) hospitals. The policy also encouraged hospitals not receiving this designation to lower their price. Together, these two changes generated a 26-percent reduction in the average price paid by CalPERS and cumulative 2-year savings of $5.5 million. Patients choosing high-value facilities reported being satisfied with the level of care they received. Analysis of the policy’s impact with respect to the outpatient procedures is not yet available, although early indications suggest it has generated cost savings with minimal member pushback.  Evidence Rating (What is this?) Moderate: The evidence consists primarily of pre- and post-implementation comparisons of the proportion of enrollees choosing high-value hospitals for hip and knee replacement procedures and the average price paid by CalPERS to hospitals for these procedures. Additional evidence includes estimates of the cost savings generated for CalPERS from changes in provider choice and hospital pricing.  Developing Organizations California Public Employees' Retirement System Use By Other Organizations Safeway (a grocery store chain) has adopted reference pricing for expensive imaging and laboratory tests, including diagnostic colonoscopies.1 Kroger (also a grocery store chain) has partnered with WellPoint (part of Anthem Blue Cross) to implement reference pricing for high-cost imaging tests, including magnetic resonance imaging and computed tomography scans. Date First Implemented 2011 The reference-pricing policy took effect on January 1, 2011, for hip and knee replacement procedures. Patient Population Insurance Status > Commercial