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Anthem Blue Cross Pilot Reduces Surgery Costs by 19%

 |  By Margaret@example.com  
   August 09, 2013

A reference pricing strategy, in which an employer agrees to pay a certain amount for a procedure and anything above that amount is the employee's responsibility, cut the price of hip and knee replacement surgeries by 19% in a one-year trial.

A pilot program that teamed Anthem Blue Cross of California with employees at the California Public Employees Retirement System (CalPERS) trimmed the price of members' hip and knee replacement surgeries by 19% in one year.

Hospital costs have come under intense scrutiny as healthcare reform has focused on cost transparency that has revealed a wide variation across hospitals for the same procedures. In California hospital charges for total knee replacement and total hip replacement surgeries ranged from $15,000 to $110,000 without evidence of difference in outcome or quality, a 2009 Anthem study showed.

But getting patients to pay attention to cost differences as they purchase healthcare services has been a seemingly insurmountable challenge.

"[Consumers] don't care what [healthcare] costs their insurers or employers, but when it is their own money they will move," states James C. Robinson, a health economist at the University of California-Berkley, who analyzed the pilot results and co-authored a report on the pilot that appears in the August issue of Health Affairs.

 

The pilot employed what is known as a reference pricing strategy, which Robinson describes as a "reverse deductible." For a typical health insurance plan members pay several thousand dollars in deductibles or copayments and the insurer picks up the rest of the tab. For reference pricing, employers agree to pay a certain amount for a procedure and anything above that amount is the employee's responsibility.

In its simplest form, reference pricing is like the daily per diem an employer pays for business travel. "You get $65 per day. You can spend more, but anything above $65 comes out of your pocket."

For the two-year pilot, CalPERS set a $30,000 limit on what it would allow Anthem to pay for the procedures. The insurer identified 46 hospitals across the state as value-based purchasing design facilities. To qualify, hospitals had to be part of the Anthem network, perform enough of the procedures to demonstrate skill, and charge less than $30,000 for the in-patient costs associated with each surgery.

By having the surgeries performed at a value-based facility, members paid little or no out-of-pocket costs beyond a deductible or copayment. However, if they went to a hospital that charged more than $30,000, then they had to pay the difference.

In 2011 CalPERS health plan costs dropped by 19% percent from $35,408 to $28,695 per surgical-related admission. Over two years it posted an estimated savings of $5.5 million.

In addition, surgical volumes at low-price hospitals increased by 21% for CalPERS members while higher-priced hospitals saw a 34% decrease in use by CalPERS members.

"Reference pricing completely changes the game," says Robinson. "A deductible doesn't affect your choice of hospitals because all hospital prices are above anyone's deductible. If you go to a high-price hospital or a low-price hospital, your deductible is the same."

The biggest surprise, he points out, was that some higher-priced hospitals (non value-based facilities) actually reduced their prices "in anticipation of consumer choice."

The average charge among the higher-priced hospitals fell 34% from $43,308 in 2010 to $28,465 in 2011.

Reference pricing is one tool employers may use to reduce healthcare costs. According to a Towers Watson study, 27% of employers are considering adding reference-based pricing by 2015 while 40% may add value-based benefit designs.

CalPERS is considering expanding this approach to some other procedures. In June WellPoint, Anthem's parent company, announced that it is teaming with CastLight, a technology company that specializes in healthcare transparency, to offer reference-based benefits throughout its affiliated health plans.

Margaret Dick Tocknell is a reporter/editor with HealthLeaders Media.
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