In the context of high health care costs and wide variation in hospital prices, purchasers are seeking ways to encourage consumers to make more price-conscious choices of providers. The California Public Employees’ Retirement System (CalPERS) in 2011 adopted a strategy—known as reference pricing—to guide enrollees to hospitals that provide hip and knee replacements below a certain price threshold. Previous research indicates the CalPERS reference pricing initiative saved money without shifting significant costs to enrollees or sacrificing quality. To date, however, little is known about how CalPERS implemented the program and whether other purchasers could successfully replicate the approach.
According to a qualitative study by the Center for Studying Health System Change (HSC), the CalPERS reference pricing program involved intensive communication with enrollees and met little resistance from them. Along with steering patients to lower-price hospitals, the reference pricing initiative affected market dynamics by motivating some hospitals to reduce prices for joint replacements. While respondents believed other California purchasers could replicate the CalPERS program, they identified challenges to adopting reference pricing, including lack of price transparency, which makes it difficult for purchasers to determine an appropriate reference price and for enrollees to determine their estimated total out-of-pocket costs; lack of enthusiasm from health plans that are leery of disrupting relationships with providers; and some difficulty communicating clearly with enrollees. Respondents also noted key limitations—namely, a limited emphasis on quality and limited potential for cost savings since reference pricing is suitable only for a narrow range of services and does not address whether utilization is appropriate.
- Combating Hospital Market Power
- What is Reference Pricing?
- The CalPERS Experiment
- Establishing the Price Threshold
- Reference Pricing Spurs Hospital Competition
- Patients on Board
- Raising Cost Awareness
- Expansion to Other Services
- Potential for Replication and Common Challenges
- Limitations of Reference Pricing
- Implications
- Notes
- Data Source
- Funding Acknowledgement
