How Payment Works
To understand the program, Dr. Sun said to think about a tonsillectomy. Say that a payer—e.g., CalPERS or your state’s largest private insurer—has capped the price that it is willing to pay for the procedure at $2,000. “Beyond that threshold, the enrollee, if you will—the beneficiary—will have to pay the difference on top of a copay that the payer may implement,” he said. “The payer says, ‘We’ve got 50 otolaryngologists whom we’re contracted with. So, if you find a surgeon who will do the procedure for you for $1,500, great. Then, it’s covered by our program.” Other than perhaps a small copay, the insured won’t pay anything extra. If the insured finds a surgeon who is going to charge $3,000, then the insured will have to pay the copay plus the $1,000 difference, he added.
The numbers may not seem striking in otolaryngology, but in 2011, when CalPERS set its maximum payout for a knee or hip replacement at $30,000, the amounts quickly added up. Patients “flocked to lower-priced hospitals and outpatient surgical centers,” wrote health economist Austin Frakt, PhD, in the New York Times (August 8, 2016.) Prices and total spending for the procedures plummeted.