Reference-Based Pricing and/or Centers of Excellence?

By January 26, 2018Commentary

Two tactics for controlling unit prices, and to a lesser extent, utilization, are reference-based pricing and centers of excellence for certain services.  A study carried by Health Affairs examines the relative impacts of these tactics.   (HA Article)   The setting for the study was the California employees retirement plan, which covers 1.4 million patients and which uses a reference-based pricing approach in its PPO option and a centers of excellence one in an HMO arm.  These plans were compared with a third option that used neither approach.  The reference-based plan paid certain designated facilities their charges, up to a cap of $30,000, for knee or hip replacements.  Patients who used other facilities had to pay any additional charges above the reference price as an extra out-of-pocket cost.  In the centers of excellence design, patients had to use one of the centers for the joint replacement, and if they went elsewhere, they paid the full cost.  Both designs had a travel benefit for patients who lived a certain distance from a facility included in the design.  The study covered patients aged 18 to 64 and replacement procedures during the years from 2008 to 2013.  The researchers used pre/post implementation and difference in differences models to assess the effect of the tactics on utilization and spending.  Adjustments were made for patients demographic and health characteristics.

For the reference-based pricing approach used in the PPO arm, the percent of procedures performed in the contracted facilities rose from 45.3% in 2010 to 66.2% in 2013.  For the centers of excellence approach used in the HMO option, the percent of procedures in the centers of excellence increased from 34% in 2010 to 79% in 2013.  The use of hip or knee replacements declined by over 20% in the HMO option compared to the PPO one, suggesting more careful utilization.  Average payments for the joint replacements in the PPO option declined by 27% relative to average payments in the HMO one in 2011, but there were not further significant relative decreases in succeeding years.  Interestingly payments in the reference-based design increased in the contracted facilities, but declined in non-contracted ones, which clearly had to decrease pricing if they wanted to attract patients.  But in the centers of excellence, there were only insignificant changes in payments between designated and non-designated facilities.  Per capita annual expense for the joint replacement procedures decreased in the years after the implementation of the designs.  Both designs had a clear impact on total spending, but the centers of excellence resulted in lower utilization and lower total spending.  At least for high cost episodes of care, both tactics appear to help control spending.

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