Reference Pricing, Here We Come

Referencing pricing is getting more (possibly gated) and more coverage lately. The recent piece in Forbes, Warning To Orthopedic Hospitals: Your Fees Are No Match For Reference Pricing, by Peter Ubel describes how CalPers was able to bring high-priced hospitals inline with their lower-priced competitors by applying the price difference directly to consumer price sharing.

California public employees were told they could use any hospital, and any orthopedic surgeon, they wanted to, but with the understanding that their insurance would cover only $30,000 of hospital expenses for their hip or knee replacement procedures. So if a patient chose a hospital that charged $40,000 for such a procedure, that patient would be financially responsible for that extra $10,000.

This strategy caused a significant increase in business to the lower-priced hospitals and, eventually price concessions from the higher-priced hospitals.

This reference pricing program not only influenced where people received their procedures, but how much they paid for them. In response to this lost business, high-priced hospitals dramatically reduced their fees … Remarkably (sarcasm alert) their new fees came in just under $30,000.

If you’re not looking into this contracting strategy, you should.


Speak Your Mind