CalPERS Members Had Similar to Better Outcomes at Facilities Charging Less for Hip and Knee Replacements

Press Release, June 23, 2013

A pilot program for the California Public Employees’ Retirement System lowered the price of members’ hip and knee replacement surgeries by 19 percent in one year while also demonstrating similar to better outcomes at lower-cost hospitals.

The analysis, conducted by HealthCore, WellPoint’s outcomes research company, will be presented at the AcademyHealth Annual Research Meeting today in Baltimore. The study is based on findings for the referenced-based purchasing design program for CalPERS members developed by CalPERS and WellPoint’s affiliated health plan in California.

As part of the CalPERS intervention program, members of the California Public Employees’ Retirement System were given a list of designated facilities that charged less than $30,000 for in-patient costs associated with each knee and hip replacement surgery.

To qualify for the list, hospitals had to have already contracted with the network of WellPoint’s California affiliated health plan, which manages a robust credentialing process.

Members were able to either choose from 46 facilities on the list that would result in them paying little to no out-of-pocket costs beyond deductible or co-insurance or pay the difference if they used another facility that charged more than $30,000.

The result was that CalPERS health plan costs dropped significantly – by 19 percent from $35,408 to $28,695, per surgical-related admission.…


Hospitals cut some surgery prices after CalPERS caps reimbursements

By Chad Terhune
Los Angeles Times, June 13, 2013

When the California Public Employees’ Retirement System told its Anthem Blue Cross members it would pay only up to $30,000 for a knee or hip replacement surgery, some patients shopped around for a cheaper hospital.

What may be more surprising is that about 40 higher-priced hospitals in the state cut their surgery prices significantly to avoid losing patients. That response accounted for about 85% of the $5.5 million CalPERS saved over two years, researchers at UC Berkeley found, with the rest of the savings coming from patients opting for lower-cost hospitals.

It works essentially as a reverse deductible for employees and their families. Their employer will pay up to a certain amount for a surgery, colonoscopy or lab test and anything above that amount comes out of the patient’s pocket.…


Effects of a Reference-Based Purchasing Design Program on Healthcare Utilization and Outcomes of Knee and Hip Replacement Surgeries

Co-authors: Sze-jung Wu, HealthCore, Inc.; Michael Belman, Anthem Blue Cross; Andrea DeVries, HealthCore, Inc.
Presenter: Chia-hsuan Li, M.S., Senior Research Analyst, Health Plan Research, HealthCore, Inc.

AcademyHealth, 2013 Annual Research Meeting, June 23-25, 2013

Research Objective:

Controlling healthcare expenditure while ensuring the delivery of high-quality care is a priority for payers. Recognizing the wide discrepancies in cost for joint replacement procedures, a large employer group in California implemented a RBPD program (Reference-Based Purchasing Design program) beginning in 2011 for total knee replacement (TKR) and total hip replacement (THR) based on a threshold facility payment of $30,000. Members were given a list of designated facilities meeting the threshold and were told that they would be responsible for cost differences above the threshold if they chose non-designated facilities. This study is aimed at evaluating the impact of the RBPD program on utilization and patients’ health outcomes, relative to a comparison population.

Study Design:

A retrospective observational study was conducted using administrative claims. We compared TKR and THR rates at RBPD-designated facilities in the intervention group to a comparison group without the RBPD program at baseline year (2010) and intervention year (2011). The change in average cost per procedure was measured. We also compared postsurgery infection, complication, and hospital readmission rates between two cohorts. The difference in utilization and health outcomes between groups were examined by ANOVA and chi-square tests. Multinomial logistic models were fitted to examine the likelihood of unfavorable health outcomes between groups adjusted for age, gender, and comorbid conditions.

Population Studied:

Adults under age 65 diagnosed with osteoarthritis and receiving a unilateral TKR or THR. The intervention cohort consisted of members of the employer group where the RBPD program was implemented (N=799), whereas the comparison cohort contained individuals not covered by the employer health plan but living in the same geographic area (N= 5,279). Each patient was followed for 30 and 90 days following the surgery or until their health plan eligibility ended.

Principal Findings:

Use of RBPD-designated facilities rose 21% among the intervention group (from 45.7% in 2010 to 55.5% in 2011, p<.01) while decreasing 24% among the comparison group (46.5% & 35.4%, p<.01). Average allowed cost (sum of plan paid and patient out-of-pocket) decreased 20.6% for TKR (p<.01) and 13% for THR (p=.01) for the entire intervention group. Patients in the intervention group using RBPD-designated facilities experienced reductions in allowed cost, so did those using non-designated facilities. The reductions were greater for non-designated facilities users (p<.01 both procedures). Out-of-pocket cost remained unchanged (p>.5 both). RBPD-designated facilities were associated with lower adjusted likelihood of 30-day general infection and complication (OR: 0.47, 95% C.I.: 0.24 – 0.94 infection; 0.68, (0.47, 0.98) complication), and a statistical insignificant adjusted rate of 90-day hospital readmission (1, (0.58,1.77) ).


The RBPD program increased the use of designated facilities by 21% for the entire intervention group, achieving allowed cost reductions of 18% per procedure while out-of-pocket cost to members remained relatively flat. The quality was unaffected. Implications for Policy, Delivery or Practice: Traditional cost-sharing strategies have shown little effect on member’s choice in providers, most likely because members are insensitive to procedure costs and unaware of cost variation. RBPD addresses these barriers. This study suggests that a RBPD program can engage members to choose high-value services with lower cost but unaffected quality.

Funding Source(s): WellPoint, Inc.

AcademyHealth Podium Presentation Abstracts (page 33 for this report):…

Reference pricing controls spending by setting a price near the low end of market prices for a given health care service or bundled service, and then requiring the patient to pay any amount over the reference price. It is a reversal of charging the patient a deductible, in that the patient pays any excess at the top, rather than a set amount at the bottom. It is a form of defined contribution, and as such could expose the patient to potentially much higher costs above the reference price.

California Public Employees’ Retirement System (CalPERS) and WellPoint’s Anthem Blue Cross joined together in this pilot program on reference pricing. Prices for the services covered were reduced – 13% for total hip replacement and and 21 percent for total knee replacement – and out-of-pocket costs did not change for patients. It worked. Facilities reduced their prices to reference levels, and patients used facilities that adhered to reference prices, and therefore they were not penalized financially.

The primary trade off appeared to be that 21 percent of patients switched to facilities that were not their initial choices. This has a potential of disrupting established, integrated care patterns, though this was not evaluated in the study. An example might be of a reference price for diagnostic imaging that is available only in an institution not associated with your usual sources of care, leading you to either disrupt your care or suffer higher out-of-pocket spending.

There also can be a problem establishing a reference price. The insurer may set a price available only in distant urban regions – a price that is not available in your community. You could have a $50,000 procedure that might cost you $1,000 under a high-deductible PPO, but have a price of $30,000 under reference pricing, leaving you stuck with a bill of $20,000 if you find that a reference-based institution is not readily accessible. Reference pricing is not a perfect solution.

There is a much more fundamental problem with reference pricing that is not so obvious. In a September 2012 Health Affairs article on reference pricing (in centers of excellence), James Robinson and Kimberly MacPherson write, “Both reference pricing and centers-of-excellence contracting can be used by Medicare Advantage health plans because they have the ability to impose differential cost-sharing requirements and exclude providers altogether from their contractual networks. However, the new benefit designs will be applicable to traditional Medicare only if the program becomes willing and able to use consumer cost sharing to channel patients to particular providers based on quality and efficiency.”

From this comment, it is obvious that reference pricing is a creation of those who believe that the consumer (patient) should be in charge of making purchasing decisions based on price. It is the obsession of the policy community with this market concept of health care purchasing that has led to the highly dysfunctional, egregiously expensive, and poorly allocated health care system that we have today.

Think about it. The traditional Medicare program has been far more effective than the private insurers at getting health care priced appropriately, and yet they say that we should abandon that approach and “use consumer cost sharing to channel patients.” That is, we should shift risk to the patients – exposing them to financial penalties should they not make perfect decisions in their health care purchasing, even as the private insurers create yet more barriers to perfectly priced health care!

Forget reference pricing. Let’s let our public administrators obtain the best value for us through global budgeting of our hospitals and negotiated rates for professional services and products, as we would have with a single payer system. A “reference price” wouldn’t make any sense in such a logical system. There would be only one price, paid by our public administrator, based on legitimate costs and fair margins.