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As insurers and large employers grapple with how to reign in health care costs, a growing number are turning to reference pricing. Reference pricing is a benefit design in which an insurer defines the maximum amount that it will cover for a particular health care service. Enrollees who seek care from providers charging more than this “reference price” are responsible for paying the difference between the actual price of the service and the insurer’s cap. As reported by the Associated Press, the Obama administration recently indicated that the use of reference pricing by large group and self-funded group plans does not violate the Affordable Care Act’s cap on patients’ annual out-of-pocket costs. Some experts say this guidance is likely to encourage additional employers to adopt reference pricing strategies, even as patient advocates warn that this approach may stick unwitting consumers with expensive medical bills.
As the Associated Press reports, early evidence suggests that reference pricing may be a promising cost-control strategy when applied to frequently performed, non-emergency tests and procedures where the prices charged vary widely across providers but the quality of results remains largely similar. In a 2013 study, James Robinson, Ph.D. and Timothy Brown, Ph.D., University of California, Berkeley, evaluated the impact of reference pricing on the use of and prices paid for knee and hip replacement surgery by members of the California Public Employees’ Retirement System (CalPERS), the country’s second largest purchaser of health benefits. The researchers found that the reference pricing program saved CalPERS an estimated $5.5 million over two years, with most of the savings attributed to providers lowering their prices to meet the reference price. CalPERS is not alone in its reference pricing initiative: In a survey published by Mercer last year, 11 percent of large employers said they were already using reference pricing and another 13 percent said they were considering it.
However, some experts are concerned about the impact of reference pricing on consumers, particularly the potential for poor communication with plan enrollees, who may unknowingly choose high-cost providers and incur thousands of dollars in medical bills as a result. There are also concerns about differences in quality across providers, as well as potential barriers to accessing local providers who offer care at the reference price. In its recent guidance, the Departments of Labor and Health and Human Services acknowledged that reference pricing “may be a subterfuge for the imposition of otherwise prohibited limitations on coverage, without ensuring access to quality care and an adequate network of providers.” Federal officials are asking for comments on reference pricing by August 1, particularly in regards to the standards plans using reference pricing should meet to ensure enrollees have meaningful access to quality care.
In an ongoing HCFO-funded study, Robinson and Brown are examining the impact of grocery retailer Safeway Inc.’s reference pricing program on consumer choice and provider pricing for laboratory tests and diagnostic imaging. One component of their analysis consists of key informant interviews intended to provide information on the structure of Safeway’s reference pricing program and the ways in which it was communicated to employees. The second part of the study will quantify the program’s impact on consumer choices, provider pricing strategies, and total expenditures. The analysis will focus on the 20 most common lab and imaging tests used by Safeway employees and include a control group of employees from other firms who are in the same geographic regions but who were not subject to reference pricing.
Additional information about Robinson and Brown’s HCFO-funded study is available here.