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California Saves $7 Million on Colonoscopies Using New Payment Model
A new payment model known as “reference pricing” has saved the California Public Employees’ Retirement System (CalPERS) $7 million on colonoscopies since its introduction in 2012, according to a study funded by the Agency for Healthcare Research and Quality (AHRQ).
Under reference pricing, CalPERS covered the entire cost of a colonoscopy if a member chose to have it done at a facility that cost less than the 80th percentile of prices in the market ($1,500), but covered only the first $1,500 for the same procedure at higher-priced facilities, with the patient responsible for the remaining cost.
The authors found that implementation of reference payments greatly increased the percentage of patients choosing lower-priced facilities. This in turn led to a substantial reduction in the mean price paid for the procedure (21 percent less on average), without a reduction in safety. In the first two years after implementation, CalPERS saved 28 percent compared with what it would have spent in the absence of reference payments, according to the study.
Employers, insurers, and consumers face varying prices for the same procedures within the same local communities, including screening tests, such as colonoscopy. Prices charged to private insurers can be especially high for procedures provided in hospital-based outpatient departments (HOPDs) even when they are also available in freestanding ambulatory surgery centers (ASCs). Medicare also pays substantially more for ambulatory procedures if they occur in an HOPD than if they occur in a freestanding ASC.
As employers begin to experiment with payment methods aimed at countering high health care prices while maintaining consumer access to services, their study shows the value of reference payments, the authors say. Reference pricing may be interpreted as a softer consumer-directed incentive than “narrow network” contracting. It offers partial coverage when a consumer selects a high-priced health care facility, whereas narrow-network insurance designs offer no coverage in those situations.
Source: JAMA Internal Medicine; September 8, 2015