Purpose: In response to ever-increasing health care costs and wide practice variation, self-insured employers are instituting innovative benefits designs to control their medical expenditures. Reference pricing establishes a fair price that the employer is willing to pay for health care services (typically lower than the rate negotiated between many providers and the health plan) and is gaining popularity among employers for commodity services. We report the potential savings in medical expenditures for an employer after instituting reference pricing for 498 common laboratory tests, colonoscopies, 37 MRIs, and 38 CTs.
Methods: We evaluated the 2010 claims for a self-insured company with 20,000 employees. We calculated the median price for each service and compared the potential savings if the reference prices (RPs) were set at 50% vs 80% of the median. Reference pricing is typically applied only to outpatients receiving care under non-urgent circumstances; thus for each category of service, we applied common exclusion criteria used among employers (e.g., excluding inpatients, patients undergoing chemotherapy or dialysis).
Results: The total medical expenditures for patients eligible for reference pricing was $52.1 million. There was enormous cost variance for individual procedures (e.g., median price among the 5274 claims for a standard lipid panel was $22, range: $3-$522). The total expected cost savings to the employer would be 4.4% if RPs were set at 80% of the median and 5.7% if RPs were set at 50% of the median. The savings opportunity was greatest for imaging tests (combined total for MRIs and CTs): 2.5% and 3.0% for RPs set at 80% and 50% of the median respectively; followed by labs (1.3% and 1.8% for RPs at 80% and 50% of the median), and colonoscopy (0.6% and 0.9% for RPs at 80% and 50% of the median).
Conclusions: Reference pricing is a promising means for controlling medical expenditures, especially for commodity services. Whether the expected cost savings will be realized and the extent to which lower cost providers consistently provide high quality care requires further careful evaluation.
See more of: The 33rd Annual Meeting of the Society for Medical Decision Making