The Truven Health Blog

The latest healthcare topics from a trusted, proven, and unbiased source.


Reference Pricing Can Incent Price Moderation

By Truven Staff
Tom Weatherup imageA recent article in Modern Healthcare discussed the idea of meaningful competition. “Ensuring meaningful competition” through increased transparency is a key component to re-engineering the U.S. healthcare system and resolving the issues of high costs and high utilization.

When large employee group health plans, like CalPERS, are able to access and analyze claims data, they can see (often for the first time) the wide variation in pricing that currently exists. Many of our large employer customers are shocked at the extremely wide range of all-in prices for the same service, such as colonoscopy or knee replacement, within a confined geographic area.  

Of course, in the current environment consumers tend to be price insensitive, due to the design of health benefits, and they can’t access marketplace pricing even if they were interested. Given the lack of price information, the CalPERS initiative of setting a reference price (for the allowed amount covered by the plan) for a subset of specific procedures is a reasonable approach to communicate what is considered “average” for a given service within the marketplace. An interesting, and perhaps unexpected, result of the CalPERS reference pricing initiative is that many high-priced providers have lowered their price to the reference price or near it. In retrospect, this is a reasonable response by providers when discovering that their price was inconsistent with the marketplace – especially in an environment where consumers now care about provider prices.

Tom Weatherup
Vice President, Client Service

Reference Pricing: Carrot or Stick?

By Truven Staff
Matt Collins imageAs a recent Associated Press article pointed out that the Obama administration is supporting the continued practice of reference-based pricing, but that decision is being met with mixed reactions. Some say it’s an innovative healthcare cost-control strategy; others worry about the burden on patients.

Either way, it’s really only a matter of time before more employers and health plans begin to strategically implement the concept to reduce costs — because it works. Recent research studies show the use of reference pricing, where plans place a cap on what they will pay for a specific procedure, saves money for both organizations and patients alike.

The key for employers and health plans going forward, though, will be to decide whether to use reference pricing as an incentive or punishment — the proverbial carrot or stick.

Using it as a motivational tool, businesses can leverage the opportunity to inform consumers of reference prices — and then reward them for staying below that price. Rewards could take the form of gift cards for accruing X amount of dollars below the reference price, or even straightforward cash-back rewards equaling the difference between the reference price and the lower dollar amount charged by the provider.

And we already know that encouraging consumers with rewards is a great way to take overall engagement to a whole new level.

Of course, cost penalties that hit their personal pocketbooks can get the attention of consumers, too. Organizations could simply choose to present consumers with reference prices, thus making them accountable for the difference between the actual amount of the procedure over the reference price.

No matter which path an employer or health plan chooses, finding ways to boost cost transparency, like offering treatment cost calculators and other personalized tools, will be important as reference-based pricing gains ground.

Matt Collins
Director, Product Management

How Strong is the Physician-Patient Bond?

By Truven Staff
Michael R. Udwin imageThe Wall Street Journal article “Comparison Shopping for Knee Surgery” chronicles a successful California Public Employees' Retirement System (CalPERS) pilot, which established a $30,000 “reference price” for hip and knee replacement procedures. Under this scenario, patients were free to pursue surgery at a hospital with pricing above this threshold but would be responsible for the excess cost. As anticipated, patients preferentially selected facilities with pricing at or below $30,000, while many hospitals with pricing above $30,000 reduced fees to mitigate declines in patient volume. Interestingly, this behavior contradicts the axiom: “patients choose the doctor not the hospital.”

This is not the first time we have witnessed fraying in the physician-patient bond. Routinely, outpatient respiratory complaints are encouraged to visit an urgent care center rather than the family practitioner. And the days where the office internist also managed inpatient pneumonia care are long gone, as hospitalists now attend to a large portion of admissions.

CalPERS benefited from an innovative pricing structure designed to selectively encourage high-quality, lower-cost surgical settings. Such an outcome is certainly no surprise to anyone navigating a world of increasing co-payments and deductibles. Beside monetary considerations, are there other factors contributing to physician selection and retention? Of course, word of mouth, referrals, and accessibility are relevant. With enhanced transparency, perhaps quality and patient satisfaction scores will emerge as strong motivators.

The question still remains: “how strong is the physician-patient bond?” Sentimentally, I would like to believe that personal connectedness and longevity determine the strength of cohesion. Yet realistically, perhaps I should be content with the knowledge that if not now, then soon, patients will choose their doctor based on adherence to best practice, outstanding clinical outcomes and appropriate use of resources…and a great personality!

Michael R. Udwin, MD, FACOG
National Medical Director