Will Reference Pricing Impact Otolaryngology?

How Does It Work?
A payer sets a threshold for what it will pay for a particular procedure. The patient then chooses a provider, and if the cost of the procedure comes in at or below the set price, no out-of-pocket costs are incurred other than copays. If the cost exceeds the set price, the patient is responsible for paying the difference.

How Well Does it Work?
The largest reference pricing model studied to date is the one managed by CalPERS, which has resulted in 20% reductions in costs for some procedures and produced millions of dollars in savings.

Can This Payment Model Be Applied to All Procedures?
Technically, yes. But the highest value is gained by targeting procedures that tend to have wide variances in pricing.

Why Is the CalPERS Model Working?
For patients, choosing hospitals within the CalPERS plan limits out-of-pocket costs. Additionally, many hospitals that have charged more than what CalPERS is paying have renegotiated their pricing to meet the pension system’s payment so that they don’t lose patients.

What Are Its Limitations?
Some concerns about this model have been that it does not include quality improvement. Also, the model has no way to reward efficient care or address unnecessary utilization.—RQ

Source: Center for Studying Health System Change