Reference Pricing Programs Yield Only Modest Savings

Reference pricing programs can steer patients to lower-price, adequate quality providers, but potential savings to health plans and purchasers are actually modest, according to a study from the National Institute for Health Care Reform (NIHCR).

The study examined the California Public Employees’ Retirement System (CalPERS), which adopted in 2011 reference pricing for inpatient knee and hip replacements. The plan set an upper limit of $30,000 for hospital facility services for these types of procedures and designated certain in-network hospitals that met the reference price.

Patients who chose to use the designated hospitals were only responsible for the health plans usual cost-sharing amounts. Patients choosing other hospitals were responsible for both the usual cost-sharing amount and any amount above the $30,000 reference price.

Applying this narrow reference pricing program to other privately insured populations would only save a few tenths of a percent of total spending, according to the NIHCR report.

“The potential savings from reference pricing are modest for 2 reasons: shoppable services only account for about a third of total spending, and reference pricing only directly affects prices at the high end of the price distribution,” Chapin White, PhD, a former senior researcher at the Center for Studying Health System Change, now at RAND, and lead author of the study with Megan Eguchi, MPH, a senior programmer analyst at Mathematica Policy Research.

However, applying reference pricing to a broader set of “shoppable” inpatient and ambulatory services would yield potential savings of roughly 5% of total spending, according to the report. Shoppable services were defined as those that could be scheduled in advance with multiple providers in a market performing the service and price data available for the different providers.

“When considering reference pricing, employers and health plans need to weigh the potential for savings against increased plan complexity and financial risk to enrollees, along with the analytical and financial resources needed to create and manage the program,” White said in a statement.