Implications
The percentage of CalPERS members using low-priced facilities increased from 48% to 63% following implementation of reference pricing.
In the year following implementation, the average price charged to CalPERS for joint replacement surgery declined by 26.3%. This decrease was mostly due to a 34.3% decrease in price at facilities that were previously charging above the reference price.
In 2011, a total savings of $3.1 million was attributable to reference pricing. CalPERS saved $2.8 million, and CalPERS members saved $300,000 in lower out-of-pocket cost sharing.
FULL ARTICLE: Increases In Consumer Cost Sharing Redirect Patient Volumes And Reduce Hospital Prices For Orthopedic Surgery
In 2011, the California Public Employees' Retirement System (CalPERS) implemented reference pricing for joint replacement surgery.
Joint replacement surgery is a highly invasive surgical procedure that removes the damaged part of a joint and replaces it with a prosthetic device made out of metal, ceramic, or plastic.
Joints can become damaged from traumatic injuries, arthritis, and other conditions, which can cause significant pain and loss of function (Cleveland Clinic, 2016). Joint replacement is usually the last line of treatment, after medications and physical therapy fail.
The most common sites for joint replacement surgery are the hip, knee, and shoulder, though the procedure can also be performed on the ankle, wrist, and elbow.
CalPERS implemented reference pricing for orthopedic surgery, specifically for knee and hip replacement, because of a large variation in procedure prices with no measurable difference in quality.
The reference price was set at $30,000. Forty-one hospitals were identified as charging less that $30,000 and meeting a threshold level of quality.
Patients who selected one of the 41 identified hospitals were responsible for their normal 20% coinsurance, up to a maximum of $3,000.
Patients who selected a hospital charging more than $30,000 were subject to the $3,000 coinsurance, and paid the difference between the hospital charge and the CalPERS contribution.