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Does Knowing Medical Prices Save Money? CalPERS Experiment Says Yes

By Ankita Rao

December 6th, 2013, 3:24 PM

The fact that the cost of a hip replacement can ring up as $15,000 or $100,000 — depending on the hospital — makes a lot of people uncomfortable. But that’s only if they know about the wide price tag variations.

In an effort to raise awareness and rein in what can seem like the Wild West of health care, the California Public Employees’ Retirement System (CalPERS), the second largest benefits program in the country, and Anthem Blue Cross started a “reference pricing” initiative in 2011. The initiative involved a system to guide their enrollees to choose facilities where routine hip and knee replacement procedures cost less than $30,000.

Here’s how it works: The CalPERS program designated certain hospitals that met this cost threshold, and enrollees who chose among these facilities pay only the plan’s typical deductible and coinsurance up to the out-of-pocket maximum. Patients who opted for other in-network hospitals were responsible for regular cost sharing and “all allowed amounts exceeding the $30,000 threshold, which are not subject to an out-of-pocket maximum,” noted the report.

The results tallied savings of $2.8 million for CalPERS, and $300,000 in patients’ cost sharing, according to research released Thursday by the Center for Studying Health System Change for the non-profit group National Institute for Health Care Reform.

Researchers found that patients who received “intensive communication” from CalPERS were supportive of the efforts and recognized lack of price transparency in the system. The report also said enrollees were satisfied with the level of care they received when choosing facilities that met their cost threshold.

But that information has yet to reach the larger population of health consumers, said Alwyn Casill, the director of public relations for the Center for Studying Health System Change.

“There is a tremendous need to increase public awareness of this problem,” she said. “It should matter to you as someone who is paying for health care, not just for you, but for everybody.”

While the report doesn’t completely detail CalPERS’ approach to reference pricing, Casill said there is optimism that it will be a model for other insurance plans and medical systems.  But that is further limited by the narrow focus of this initiative on just two kinds of procedures — others, like MRIs and CAT scans, are also vulnerable to wide pricing disparities.

Some experts say any real success on streamlining health care costs will include the ability for consumers to understand the issue and call for change.

“The numbers are dramatic,” said Julie Schoenman, director of research and quality at the National Institute For Health Care Management Foundation, a non-profit educational organization unaffiliated with the report. “I think you really do need to have good quality measures, good transparency. And a lot of patient education.”

18 Responses to “Does Knowing Medical Prices Save Money? CalPERS Experiment Says Yes”

  1. JS says:

    Of course it can save you (and your health plan if it is self funded) money! The hospitals chargemaster has seemingly no rhyme or reason to it. Does $1,000 for a bone screw sound fair? For those of you that are unfamiliar I suggest you look at the Oklahoma Surgery Center’s website. This is the only provider that I am aware of that provides full transparency on the cost of their services UP FRONT.

  2. sam says:

    Republicans want to repeal Obamacare so we can return to this? How insane is that? Republicans feel perfectly comfortable allowing providers and insurers to scare the hell out of you with the bogus medical prices that we’ve had to endure for decades. Healthcare in the past has been a shell game where shysters in the medical industry and shysters in the insurance industry have been in total control and consumers have been victims. Republicans support that old game. They don’t like that Obamacare is finally turning on the kitchen light and the cockroaches are scattering to find a dark place to hide. Folks! Republicans are not your friend! Not unless your are a member of the top 1 percent. Any middle class American that votes for Republicans is a total idiot.

  3. Mike says:

    A partisan rant isn’t the way to fix a broken health care system. Under the Bush administration legislation enabling health savings accounts was enacted. HSA’s are the ultimate transparency tool because you are spending your money. Initial versions of the ACA attempted to eliminate HSA’s through the minimum benefit level mandates.Thankfully, HSA compatible plans survived and people who choose these affordable plans will have an incentive to look for value(the best balance of cost and quality) in health care services.

    It’s OK to criticize, but get your facts straight first!

  4. Sam: Where do you get your “facts” ?

  5. Jenn says:

    Knowing the price of anything allows room for negotiation. Having a starting point and knowing the actual costs including charges for each clinician involved, gives leverage when using an HSA exclusively or private funds. If using insurance, those rates have already been negotiated and are final but it is still prudent to shop around for the best rates with comparable quality. An HSA is only good in that case for copays, deductibles and non-covered charges.
    Medical tourism is great in that the costs are much more transparent and procedures can be negotiated, paid for by HSAs and sometimes are covered by insurance. More often than not, the services are much less expensive in other countries and a much needed vacation can be had while ‘recuperating’.

  6. Sam says:

    Facts? Want facts? Here’s a fact that you need to deal with. Over 50 million Americans are uninsured. If those 50 million Americans are getting healthcare, they are getting it at their local hospitals emergency room. Just because Republicans say the uninsured can’t have healthcare by denying them access to Medicaid, do you think that stops them? If you think that’s true, if you think like Republicans that freeloaders are, all of a sudden, going to get religion and will voluntarily stop abusing the charity of hospital emergency rooms, then you fall into the category that my very broad brush paints…that all Republicans are very stupid people! Got that?

  7. Sam says:

    Back in 1989, Republicans had a good idea. It was called mandated health insurance and it was dreamed up by the ultra-conservative Heritage Foundation. That idea was so good, Gov. Mitt Romney adopted it for Massachusetts in 2006 and it became the hugely successful healthcare program known as Romneycare. Romneycare became so successful that Barack Obama copied it and called it the Affordable Care act. For Republicans still fighting the Civil War, for Confederate Republicans still fighting against the emancipation of their property some 150 years ago, they would have nothing to do with anything promoted by Barack Obama. Not even their own idea. The Heritage Foundation mandated health insurance idea may have been a great idea but not coming from Barack Obama. I’ll keep painting Republicans with the same broad brush until they learn that they need to perform surgery and remove the cancerous tumor known as the tea party. The tea party needs to find another host to attach itself to and stop ruining the once great Republican Party. I am ashamed to admit that I’m a Republican these days. The GOP has become an embarrassment.

  8. Tom says:

    To focus on plan details instead of policy points, could someone help me with this sentence from the report?
    –begin–
    Patients who opted for other in-network hospitals were responsible for regular cost sharing and “all allowed amounts exceeding the $30,000 threshold, which are not subject to an out-of-pocket maximum,” noted the report.
    –end–
    How is the out-of-pocket maximum not a limit on total expenses billable to the insured? What are these items? How does this work, that charges in excess of this limit are nevertheless billed to the policyholder?
    I must be missing something here. Appreciate any clarification.

  9. Cindy says:

    To respond to the question above, basically, what they are trying to say is those who did not use the hospital that had the $30,000 threshold were responsible for the rest of the cost, but it did not hit their out of pocket maximum. That means that they would still need to hit their out of pocket maximum without these amounts that they paid going towards it.

    I like transparency, but I don’t exactly agree with doing it this way. There is a company called Castlight that provides transparency to employers based on their plans and geographic areas. This allows the employer to provide the service to their employees in order to help them to be better consumers of their health care. The employee has the ability to check o see what the procedure they are having done costs at the facilities in their area. The person then can select what they want to pay, which is great if you have an HSA, which is mentioned above.

    People need to get out of the mindset that purchasing health care is different than any other purchase that we make. As soon as we start thinking of it like any other purchase, we will become better consumers, and that will drive competition, which will drive better pricing.

  10. Tom says:

    “People need to get out of the mindset that purchasing health care is different than any other purchase that we make. As soon as we start thinking of it like any other purchase, we will become better consumers, and that will drive competition, which will drive better pricing.”

    Yeah! Right? And when we experience another Wall Street meltdown like what happened during the Bush/Cheney Administration, when we see 800,000 jobs lost per month, month after month after month, when we see unemployment skyrocket to over 8 percent as a result of Republicans economic policies and when we see people out of work and unable to purchase health care because they run out of money paying their rent and buying food for their kids, THEN WHAT EINSTEIN? Fact is, health insurance is not like any other purchase that we make. For some, it’s not affordable. What do the uninsured do when they can’t afford health insurance? Do you think they stop being treated? It might be easy to stop driving because you can’t afford to buy a car. But unlike buying a car, getting treated because you have cancer is much different. If it means they will die because they don’t get treatment, you can bet they will get treatment. At the hospital emergency room. Who pays? YOU! You’ll pay more in higher premiums to cover uncompensated emergency room care. That’s why health insurance is important and nothing like every other purchase we make. If we don’t make sure the uninsured are covered, WE ALL PAY MORE!

  11. killroy71 says:

    Drop the politics and ranting, people. This has NOTHING to do with ACA and EVERYTHING to do with the fact (yes, fact, there’s a lot of studies about it) that the unit cost of medical goods and services is too high. A recent study published in JAMA says unit price is responsible for 91 pct of the health care spending increase since 1980.
    http://jama.jamanetwork.com/article.aspx?articleid=1769890

    This is great news. More insurers need to do this, more insured groups need to do this, and more companies like Castlight and HealthSparq need to be used at the consumer level to gauge pricing.

    While some spending is NOT like buying a car, shopping for new hips and knees- the top surgery performed at many hospitals – is EXACTLY like shopping for a new car. It’s not an emergency, there’s plenty of time to shop for the best price, best results, best equipment, even user reviews of models, facilities and providers.

  12. Mary says:

    Kilroy?

    You make the perfect case for the most popular motive of the affluent 1 percent of Americans. GREED! The “unit cost” of anything is sustained by one single motive. GREED! No other motive affects prices more than greed. Meanwhile, 50 million Americans are uninsured. Like it or not, until you admit to yourself that America’s healthcare problem is a problem that affects 100 percent of Americans, you will continue in your “us versus them” mentality and never solve the real problem. We will never solve the problem of greed as long as we continue to embrace capitalism and an American way of life. However, for the first time in history, Obamacare forces insurance companies to be less greedy by law. If Obamacare fails, the next step is enevitable. A single-payer healthcare system.

    The uninsured can’t access health care like those who have the money to particate. Republicnas have an answer. Republicans want to deny health care for people that can’t or won’t pay for it. Do you think the uninsured will play by Republican rules and not seek treatment for their illnesses? If that’s what you think, THINK AGAIN! Fact is, the uninsured seek their treatment at the most expensive place possible. They go to the emergency room. Who pays? Guess who! Until you begin to realize that the healthcare problem is

  13. Mary says:

    a problem that affects all insurance markets, namely building larger risk pools to force costs down, until you begin to see that building larger risk pools as the answer, we will never solve the problem like they have in most other industrialized nations.

  14. Linda Mendel says:

    Do you think the guidance published to date addresses how the ACA cap on out-of-pocket limits apply to a reference pricing model? How do you think the ACA cap on OOP limits should apply to a reference pricing model?

  15. Wayne Caswell says:

    While price transparency equips patients to shop for the best value, insurance policies with higher deductibles and lower premiums give them the incentive to do so. So while the ACA and health exchanges force new competition on the insurance industry, getting patients to shop around forces new competition on providers too.

    Another way insurers are helping to lower care costs is by paying for telemedicine as an alternative to doctor face time and medical tourism if better care & outcomes are available at lower costs across the city, state, nation, or globe. And some are even starting to pay for home health care, home medical devices, and even home modifications as an alternative to expensive institutional care at a rehab or nursing home.

  16. Steve S says:

    @Sam…can you explain how the ACA/Obamacare will change the prices and payments that providers charge for medical services and insurers reimburse?

    Your ignorance is overwhelming.

  17. Randy says:

    Steve S.,

    I think I have the answer. By creating a marketplace, the ACA creates the same group buying advantage as large employers enjoy. Large corporations buy health insurance in group plans. Basically, the theory is to create as large a risk pool as possible. That way you have all ages and all health risks pooled together so that your buying power is maximized. If I’m not mistaken, when you add all of the health exchange participants together in a specific state, you create a risk pool that overwhelms any private employer group in that state. Bottom line, all insurance companies, regardless of the insurance type, try to build large and diverse risk pools so that they maximize profits while minimizing risk. The ACA is no different. As risk decreases, eventually, prices should follow, payments should follow, costs should follow and premiums should follow. Short of any constructive ideas to improve the ACA, it’s the only thing that’s on the table. If the ACA fails, the next logical step is single-payer.

  18. sam says:

    Single-payer? If Republicans hate their own idea so much. If Republicans hate their own idea that was first conceived by the Republican think tank, the Heritage Foundation. If Republicans hate their own idea that is based solely on private health insurance. If Republicans hate their own idea that Republican Mitt Romney managed to get enacted in Massachusetts. If Republicans hate their own idea so much, maybe we should dump that perfectly good private enterprise idea and let Congress enact a single-payer system. If Republicans keep complaining about Obamacare, an idea that they first conceived, that’s exactly what will happen.

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