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Reference-based Benefit Design

By March 23, 2015Commentary

Another piece of research in Health Affairs finds that CalPERS use of reference-based pricing for some benefits may have beneficial effects.  (HA Article)   The researchers used cataract removal surgery during the period 2009 to 2013.  They compared data on 2,347 patients who were subject to the reference-based design with 14,867 patients who were in a plan without such design.  Reference-based designs base payments to all providers of a particular service or good off of a contract with a provider who offers a significant discount and good quality.  The patient is generally free to go to any provider, but will have to pay the difference between what it would have cost at the designated reference provider and what it costs at the provider the patient uses.  The intent is to drive volume to the designated provider or at least to not pay more.  In this case, one of the comparisons was of use of a free-standing ambulatory surgery center, which are usually less expensive, and use of a hospital outpatient surgery unit for the cataract removal.  CalPERS has had positive experience with reference-based design in regard to knee and hip replacements.

In 2012 CalPERS more broadly extended the concept to all hospital outpatient surgeries, to counter the effect of generally higher prices at those units, using ambulatory surgery center prices as the reference.  The data in this study was adjusted for patient and other characteristics and was examined to see if this benefit design increased use of ambulatory surgery centers for cataract removal and lowered costs.   The reference-based price limit was $2000 and in 2011, before the design change, 94% of hospital units and 27% of ambulatory surgicenters charged more than this limit.  After use of the reference-based price limit, more surgeries were done in the ambulatory units and the average price paid declined by 10.2%, or by 8%, 17.9% on an adjusted basis, compared to those paid for patients in the comparison group, which showed much less of a shift to the ambulatory surgery centers.  CalPERS saved over $1 million in two years as a result of the change.  And patients had lower cost-sharing when they used the less-expensive facilities.  This is a sensible design change, which can reduce spending while preserving choice for patients willing to pay for it.

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