Limiting Spending for Some Medical Services Increases

A growing number of employers and insurers are limiting how much they’ll pay for certain medical services, according to a recent study. The approach, known as reference pricing, is being adopted by a growing number of very large companies, according to benefits consultant Mercer’s annual employer health insurance survey. The percentage of employers with 10,000 or more employees that used reference pricing grew from 10 percent in 2012 to 15 percent in 2013, the survey found. Among employers with 500 or fewer workers, adoption was flat at 10 percent in 2013, compared with 11 percent in 2012.

An example of this is the California Public Employees’ Retirement System (CalPERS), which began using reference pricing for elective knee and hip replacements, two common procedures for which hospital prices varied widely without discernible differences in quality, says Ann Boynton, CalPERS’ deputy executive officer for Benefits Programs Policy and Planning. Working with Anthem Blue Cross, CalPERS set $30,000 as the reference price for those two surgeries in its preferred provider organization plan. Members who get surgery at one of the 52 hospitals that charge $30,000 or less pay only their plan’s regular cost-sharing. But, if a member chooses to use an in-network hospital that charges more than the reference price, they’re on the hook for the entire amount over $30,000, and the extra spending doesn’t count toward their annual maximum out-of-pocket limit, says Boynton.

Experts say that reference pricing is most appropriate for common, nonemergency procedures or tests that vary widely in price but are generally comparable in quality. And, proponents say that because research has generally shown that higher prices for medical services don’t equate with higher quality, setting a reference price steers consumers to high-quality doctors, hospitals, labs and imaging centers that perform well for that price. Yet, while others point out that reference pricing doesn’t necessarily save employers a lot of money, a study released in October by the National Institute for Health Care Reform examined the 2011 claims data for 528,000 autoworkers and their dependents, analyzing roughly 350 high-volume and/or high-priced inpatient and ambulatory medical services, and found overall potential savings was 5 percent. Reference pricing is allowed under the Affordable Care Act. But, the administration says it will continue to monitor the practice and may provide additional guidance in the future.