Reference Pricing for Surgical Procedures

Reference Pricing for Surgical Procedures

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.

Applications of Reference Pricing

Implications

Following implementation of reference pricing the percentage of CalPERs members using lower-priced hospital and ambulatory surgery centers increased substantially. The change in consumer choices generated significant savings for the employer, while quality of care remained the same, and some high-priced facilities and providers lowered their prices.

Two years after implementing reference pricing, CalPERS saved $2.8 million on joint replacement surgery, $1.3 million on cataract surgery, and $2.3 million for arthroscopy.

Learn More!

Comparison Shopping for Knee Surgery. James Robinson. Wall Street Journal. October 27, 2013.

Reference-based Benefit Design Changes Consumers’ Choices and Employers’ Payments for Ambulatory Surgery. Robinson JC, Brown TT, and Whaley C. Health Affairs 2015; 34(3):415-22.

Increases in Consumer Cost Sharing Redirect Patient Volume and Reduce Hospital Prices for Orthopedic Surgery. Robinson JC and Brown TT. Health Affairs 2013; 32(8):1392-97.

Appropriate Use Of Reference Pricing Can Increase Value. Boynton A and Robinson JC. Health Affairs Blog; July 7, 2015.

Payers Test Reference Pricing And Centers Of Excellence To Steer Patients To Low-Price And High-Quality Providers. Robinson JC and MacPherson K. Health Affairs 2012; 31(9):2028-2036.

Consumer Choice between Hospital-based and Freestanding Facilities for Arthroscopy. Robinson JC, Brown TT, Whaley C, Bozick K. Journal of Bone and Joint Surgery 2015; 97:1473-81.