Last week the National Institute for Health Care Reform released a research brief, “Reference Pricing: A Small Piece of Health Care Price and Quality Puzzle”. In the report, the NIHCR reported that reference pricing (or more commonly capping) does offer some “modest” savings among shoppable procedures.
The study looked at the California Public Employees’ Retirement System (CaliPERS) efforts to limit costs on inpatient knee and hip replacements, as well as more recent research on about a half million retired autoworkers.
Reference pricing did have the effect of reducing costs on selected procedures but the study concluded that if the reference pricing process were applied against the full universe of shoppable procedures, the resulting savings would only be in the range of 5%.
“The potential savings from reference pricing are modest for two reasons: Shoppable services only account for about a third of total spending, and reference pricing only directly affects prices at the high end of the price distribution. When considering reference pricing, employers and health plans need to weigh potential savings against increased plan complexity and financial risk to enrollees, along with the analytical and financial resources needed to create and manage the program.”
One of the requirements of reference pricing has been the selection of “designated” hospitals, providers that are in network, below the cost threshold, and meeting quality standards. The study concluded that a more measured approach of simply creating upper limits and designating those as the payable limit regardless of hospital would likely have the same effect with much less paperwork on the part of both the patient and the insurer.
“Reference pricing can be helpful in exposing and drawing scrutiny to high and widely varying negotiated prices that private health plans pay. However, reference pricing lays the responsibility for dealing with those prices on patients. Along with leaving patients potentially liable for significant cost sharing if they receive services from non-designated providers, reference pricing adds another layer to already complex benefit designs. From a plan management perspective, the analytical and financial resources needed to establish a reference pricing system might be better invested in other activities, such as narrowing the plan’s physician network or renegotiating outlier facility contracts.”
The full study can be found on the NIHCR site here.