Consumer cost sharing associated with reduced spending and good outcomes for ambulatory surgery procedures

October 2, 2015

reference pricingTwo recent studies by members of the Berkeley Center for Health Technology provide evidence that the reference payment model, an emerging form of consumer cost sharing, may reduce spending on ambulatory surgery without compromising quality.

Under reference-based benefits designs, employers and insurers establish a maximum contribution toward the cost of a test or treatment that they will pay, requiring the patient to pay the difference between that limit and the actual price charged. This system was implemented by California Public Employees’ Retirement System (CalPERS) in January 2012—providing researchers with an opportunity to examine its efficacy.

The first study, published in JAMA Internal Medicine in September, found that the implementation of reference payments for colonoscopy accelerated the shift in patient choice toward lower-priced facilities. In contrast, patients enrolled with Anthem Blue Cross—who were not subject to reference-based benefits—demonstrated no changes in their behavior in surgical facility selection. While reference payment led to a 21 percent reduction in the mean price paid for the procedure, a change in the number of 90-day procedural complications was not observed.

The researchers utilized insurance claims, on 21,644 patients undergoing colonoscopy who were enrolled in the self-insured CalPERS health benefits plan three years prior to the implementation and on 13,551 patients in the two years after implementation. Control group data were obtained on 258,616 Anthem Blue Cross enrollees who underwent colonoscopy and who were not subject to reference payment initiatives during this 5-year period.

By 2012, CalPERS paid $476 less per colonoscopy procedure than did Anthem. In the first two years after the implementation of reference-based benefits, CalPERS saved $7 million (28 percent) on spending for colonoscopic surgery. These savings accrued to California taxpayers and public employees, who together pay the premiums for the health insurance offered by CalPERS.

“This study convincingly demonstrates that consumers will select less-costly over more-costly surgical facilities for diagnostic procedures if they are required to pay the cost difference themselves, rather than leaving it to their insurer,” says James Robinson, professor of health economics at the UC Berkeley School of Public Health and lead author of the study. “Detailed examination of complications at both high-cost and low-cost facilities found that the reduction in costs did not entail any reduction in quality. Lower cost at equivalent quality: This means a gain in the value of health care.”

Another study by led Robinson, published in The Journal of Bone and Joint Surgery in September, yielded similar results. The researchers used data on CalPERS patients who underwent arthroscopy of knee or shoulder three years prior the implementation of reference-based benefits and on patients two years after the implementation. The results showed that by the second year of the reference pricing program, the mean price paid by CalPERS fell by 17.6 percent for knee procedures and by 17 percent for shoulder procedures, without any increase in surgical complications. In the first two years after the implementation of reference-based benefits, CalPERS saved $2.3 million (13 percent) on these two orthopaedic procedures.

“As the authors discussed, the value of a product corresponds to the price that a consumer is willing to pay following a cost-benefit analysis,” Drs. Kern Singh and Junyoung Ahn, both with the Department of Orthopaedic Surgery, Rush University Medical Center, write in an accompanying commentary in the Journal of Bone and Joint Surgery. “As such, further research should examine the impact of incentive program implementation (e.g., reference-based benefits) on clinical outcomes.”

In both studies, coauthors were Timothy Brown, associate adjunct professor of health economics at the UC Berkeley School of Public Health and associate director for research at the Berkeley Center for Health Technology, and Christopher Whaley, graduate student researcher at the UC Berkeley School of Public Health. Emily Finlayson, colorectal surgeon and professor at the UCSF School of Medicine, coauthored the study on colonoscopy spending. Kevin J. Bozic, professor at the UCSF Department of Orthopaedic Surgery, was a coauthor in the study on costs of arthroscopic procedures.

Support for this research was obtained from the California Public Employees’ Retirement System (CalPERS) and from the U.S. Agency for Healthcare Research and Quality.

By Jasmin M. Huynh