This study uses 2010-13 data from a large grocery chain (Safeway) and the nation’s largest private health insurer (Anthem) to examine the impact of consumer cost sharing on the use of and spending for in vitro laboratory tests and in vivo imaging modalities (CT and MRI). Prices for diagnostic tests vary more than 10 fold within and across local markets, in part due to lack of consumer price-sensitivity. In 2011 Safeway established a maximum payment level (‘reference price’) for each test in each market, pegged to the 60th percentile in the distribution of prices. Employees selecting a facility charging less than or equal to this payment limit would be subject only to the firm’s usual copayment and deductible requirements. Employees selecting a facility charging above the reference price, however, would be required to pay the full difference between the facility price and the reference price and, in addition, would also be subject to firm’s usual copayment and deductible requirements. The study compares choice of facility, consumer out-of-pocket spending, and employer spending before and after implementation of reference pricing, and compares the experience of Safeway employees with those of non-Safeway enrollees in Anthem (who were not subject reference pricing). Data for this study were obtained from Safeway and Anthem. This study is funded by the Robert Wood Johnson Foundation.
Beginning in 2010 and 2011, the California Public Employees' Retirement System (CalPERS) established reference pricing (providing full coverage up to a defined contribution limit while requiring the patient to pay the difference between this limit and the actual price paid) for five high-cost procedures based on the state-wide distribution of prices, available information on quality, and the geographical availability of services. These procedures include hip replacement surgery, knee replacement surgery, arthroscopic surgery, cataract surgery, and colonoscopy. For reference pricing to be fully effective, individuals should not face a quality difference in the services they receive based on the type of facility in which they receive services. To ascertain the existence of quality differences and related questions, this study evaluates the impact of the CalPERS reference pricing initiative on surgical complications, consumer cost sharing and insurer payment. The study uses 2009-14 data from the nation’s largest private health insurer, Anthem Inc., and is jointly funded by CalPERS and the Agency for Health Care Research and Quality (R01 HS022098).
Appropriate Use Of Reference Pricing Can Increase Value. Boynton A, Robinson JC; Health Affairs Blog, July 2015.
Brown TT, Robinson JC. Reference Pricing with Endogenous or Exogenous Payment Limits: Impacts on Insurer and Consumer Spending. Health Economics. Early View. Article first published online: 22 Apr1l 2015 | DOI: 10.1002/hec.3181.
Reference Pricing: Stimulating Cost-Conscious Purchasing and Countering Provider Market Power. James Robinson;National Institute for Health Care Management (NIHCM) Foundation: Expert Voices; October, 2013.
Comparison Shopping for Knee Surgery. James Robinson; Wall Street Journal; October 27, 2013.
How to Turn Employees into Value Shoppers for Health Care. James Robinson; Harvard Business Review; October 21, 2013.
Economic Incentives and Consumer Choice
Reference Pricing Changes The ‘Choice Architecture’ Of Health Care For Consumers James C. Robinson, Timothy T. Brown, and Christopher Whaley Health Affairs; 2017; 36(3): 524–530
Reference Pricing, Consumer Cost-Sharing, and Insurer Spending for Laboratory Tests James C. Robinson, Christopher M. Whaley, and Timothy T. Brown; February 2017
Reference Pricing Reduces Employer and Employee Spending for Magnetic Resonance Imaging (MRI) Scans James C. Robinson, Christopher M. Whaley, and Timothy T. Brown; October 2016
Reference Pricing, Consumer Cost-Sharing, and Insurer Spending for Computed Tomography (CT) Scans James C. Robinson, Christopher M. Whaley, and Timothy T. Brown; November 2016
Association of Reference Pricing for Diagnostic Laboratory Testing With Changes in Patient Choices, Prices, and Total Spending for DiagnosticTests James C. Robinson, PhD; Christopher Whaley, BA; Timothy T. Brown, PhD; JAMA Intern Med. doi:10.1001/jamainternmed.2016.2492; online July 25, 2016.
Reference Pricing, Consumer Cost Sharing, and Insurer Spending for Advanced Imaging Tests. Robinson JC, Whaley C, Brown TT; Med Care; 2016
Consumer Choice Between Hospital-Based and Freestanding Facilities for Arthroscopy. James C. Robinson, PhD; Timothy T. Brown, PhD; Christopher Whaley, PhD; Kevin J. Bozic, MD, MBA; J Bone Joint Surg Am, 2015 Sep 16; 97 (18): 1473 -1481.
Association of Reference Payment for Colonoscopy With Consumer Choices, Insurer Spending, and Procedural Complications. James C. Robinson, PhD ; Timothy T. Brown, PhD ; Christopher Whaley, PhD ; Emily Finlayson, MD, MS; JAMA Intern Med. Published online September 08, 2015. doi:10.1001/jamainternmed.2015.4594
Reference-based Benefit Design Changes Consumers’ Choices and Employers’ Payments for Ambulatory Surgery.Robinson JC, Brown TT, Whaley C; Health Affairs 2015; 34(3):415-22.
Association Between Availability of Health Service Prices and Payments for These Services. Christopher Whaley, et al; JAMA, 2014; 312(16):1670-1676.
Increases in Consumer Cost Sharing Redirect Patient Volumes and Reduce Hospital Prices for Orthopedic Surgery. James Robinson and Timothy Brown; Health Affairs; 2013; 32(8):1392-97.
Payment and Pricing for Innovative Pharmaceuticals
Value-based Payment for Oncology Services in the United States and France. Robinson JC, Megerlin F. Journal of Cancer Policy 2016; http://dx.doi.org/10.1016/j.jcpo.2016.09.001.
Biomedical Innovation in the Era of Health Care Spending Constraints.Robinson JC; Health Affairs 2015; 34(2):203-09.
Specialty Pharmaceuticals: Policy Initiatives to Improve Assessment, Pricing, Prescription, and Use. James Robinson and Scott Howell; Health Affairs, 2014; 33(10):1745-1750.
Robinson JC, Megerlin F. Le Rapport Prix/Valeur des Médicaments d’Oncologie a L’épreuve des Méthodes de Paiement aux États-Unis. Techniques Hospitalieres 2014; Nov-Dec: 27-35.
Payment and Purchasing for Medical Devices
Purchasing Medical Innovation: The Right Technology, for the Right Patient, at the Right Price.(link is external) Robinson JC; University of California Press, 2015.
US Hospital Payment Adjustments for Innovative Technology Lag Behind Those In Germany, France, and Japan. Hernandez J, Machacz SF, Robinson JC; Health Affairs 2015; 34(2):261-270.
Quantifying Opportunities for Hospital Cost Control: Medical Device Purchasing and Patient Discharge Planning. Robinson JC, Brown TT; American Journal of Managed Care 2014; 20(9):e418-e424.
National Price Variation and Potential for Spending Reductions
In response to rising health care costs, many employers and insurers have implemented programs to change how consumers select health care providers. Underlying these programs is the wide variation in prices charged for the commercially insured population. Of particular interest is the reference based payments program (RBP) implemented by the California Public Employees’ Retirement System (CalPERS) for outpatient surgical services in 2012. We have documented that this program leads to substantial changes in consumer behavior and delivers financial savings to CalPERS. In this project, we use a nationwide database of medical claims provided by the Health Care Cost Institute (HCCI) to estimate the potential savings if an analogous program were to be implemented in other geographic markets. For each local market, we identify the degree of price variation and estimate the effectiveness of RBP programs. For colonoscopies, we estimate that RBP can lead to an 8.5% savings per procedure. This study is funded by the Laura and John Arnold Foundation.
Hover over a Hospital Referral Region (HRR) on the map to see the projected savings along with the key predictive market parameters used.
Reference Pricing for Colonoscopies in California
In 2012, the California Public Employees’ Retirement System (CalPERS) implemented a Reference Pricing program for outpatient colonoscopy services. The program uses targeted financial incentives to encourage patients to receive care from less expensive providers. Reference Pricing is a form of defined contribution health benefits, where plans pay a fixed amount or limit contributions toward the cost of a specific health care service, and members pay the difference in price if a more costly health care provider or service is selected. Earlier work has shown that the program reduced medical spending by $5.5 million over two years.
Can Similar Savings be Realized Across the Nation?
Based on the success of the CalPERS program, an important question is if similar programs will work equally well in other markets or is the CalPERS experience unique to California? To answer this question, we identified the market-characteristics that drive the effectiveness of the program across different markets in California. We then used data from the Health Care Cost Institute (HCCI), along with companies providing data to it—Aetna, Humana, and UnitedHealthcare—to identify market characteristics across the country. We mapped the savings associated with the drivers identified in California to all markets in the United States to estimate where Reference Pricing programs might have the largest impact.
How Are Health Care Markets Defined?
Health care is highly localized in the United States. To analyze trends, it is necessary to organize service providers into groups. One such grouping, “Hospital Referral Regions” or HRRs, maps regional health care markets for tertiary medical care that generally requires the services of a major referral center.