Study: Lower-Price Hospitals Trigger Price Reductions at Other Hospitals

When patients were steered to hospitals that had lower prices for hip and knee replacements, other hospitals in the market reduced their prices for these procedures as well, according to a study from the Center for Studying Health System Change.

In 2011, the California Public Employees Retirement System and Anthem Blue Cross adopted reference pricing to guide enrollees to California providers that hit below a certain threshold for routine hip and knee replacements. CalPERS is a state agency that manages pension and health benefits for more than 1.6 million California public employees, retirees and their families.

The cost for these procedures ranged from $15,000 to $110,000, but CalPERS and Anthem set the threshold at $30,000. Anthem provided members with a list of 45 hospitals that met the reference price and quality criteria.

Patients who went to a designated hospital paid coinsurance for the cost of the procedure and an out-of-pocket maximum up to $3,000. Members who selected a facility with a negotiated price of more than $30,000 paid both typical cost sharing and the full amount above the $30,000 cap.

Soon after CalPERS rolled out the program, several non-designated hospitals renegotiated their contracted price with Anthem for all Anthem-covered patients, not just CalPERS members, to become designated hospitals and retain CalPERS patients. Anthem's list of designated hospitals grew from 45 to 54 hospitals by September 2012, according to the study.

Also, orthopedic surgeons reportedly did not want to operate exclusively at designated hospitals. They persuaded some non-designated hospitals to reduce their prices to accommodate CalPERS patients. This was due in part to orthopedic surgeons' considerable ability to influence a hospital's payer relationships.

One study respondent — a market observer or individuals involved in implementing CalPERS's or other purchasers' reference pricing initiatives— said, "Next to cardiologists, orthopedists are the most powerful physician group in terms of the relationships that they form with hospitals. So orthopedists' concerns about where to admit their CalPERS patients for hip and knee replacements were reflected in hospital contract negotiations."

More Articles on Hospitals and Prices:

North Carolina Hospitals Must Post Prices for 140 Procedures
Survey: Most Patients Paying Attention to Healthcare Costs
Unveiling the Cost of Care: How Transparency Changes the Patient Perspective

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