Reference Pricing for Surgical Procedures

The California Public Employees' Retirement System (CalPERS) implemented reference pricing for several high cost surgical procedures: hip and knee replacement surgery, arthroscopic surgery and cataract surgery. CalPERS serves more than 1.7 million members in the retirement system and administers benefits for nearly 1.4 million members and their families in their health program. Reference pricing was applied to the 450,000 CalPERS members enrolled in their PPO plan.

Under reference pricing for surgery:

• The insurer or employer set a limit on what it will contribute toward the price of a particular medical service
• The payment limit is set at the median or some other midpoint of prices in order to maintain an appropriate standard and access to care
• Patients who select providers or facilities that charge less than the established reference price receive standard coverage
• Patients who select providers or facilities that charge more than the established reference price are responsible for the balance

CalPERS chose to implement reference pricing for arthroscopy, joint replacement surgery and cataract surgery because they are common, shoppable, non-emergency services with wide variation in prices.

For instance, the price of joint replacement surgery in California ranged from $12,000 to $75,000, the price of cataract removal ranged from $1,000 to $6,500, and the price for arthroscopy of the knee ranged from $1,250 to $15,500.

The goal of reference pricing is to encourage patients to select lower-priced hospitals and ambulatory surgery centers instead of expensive hospital inpatient and outpatient departments.