Reference pricing reported as success

The New York Times reported on a change in reimbursement policy that the California Public Employees' Retirement System (Calpers) implemented starting in 2011. Previously, Calpers presumably paid similar to traditional payers, with the patients paying a portion of their procedures up to to certain limit. Given the price ranges of some procedures, patients were likely looking to pay the maximum regardless of which hospital they visited. As such, the patients had no reason to be concerned about the hospital charges. Starting in 2011, Calpers set prices (known as "reference prices") for specific procedures that they believed could be shopped. Patients who selected options that cost up to the reference prices would pay as they had before; patients who chose more expensive options would be required to pay the difference (in addition to the previous maximum). Suddenly, the person making the decision (regarding which hospital to use) had a very strong incentive to care about the cost. The lower-cost hospitals encountered a flood of new patients, while the more expensive hospitals ended up adjusting their pricing down. Researchers have reported that no change in quality was observed.

One nice aspect of reference pricing is that patients who very much want to use a specific hospital can still do so -- they would just need to pay the difference. In contrast, if such patients were using a plan with a narrow network and the specific hospital were out-of-network, patients likely would need to pay much more. The article notes a number of limitations of reference pricing, with a major problem being the lack of pricing transparency. Right now, it would be extremely frustrating for most patients to undergo a major medical procedure to pick a specific hospital. Many hospitals are unable to provide reasonably accurate cost estimates before the surgery, and unlike many other goods and services, there is no central platform to view different options and their corresponding prices. Nevertheless, the success that Calpers has enjoyed is encouraging; hopefully, more payers will adopt such models and provide centralized pricing information to their members.