High interest in reference pricing: Who knew? Uwe Reinhardt for one


Uwe E. Reinhardt, Ph.D.

Last summer, Uwe E. Reinhardt, a health policy expert and economics professor at Princeton (and keynote speaker at Health Journalism 2009), predicted this would happen.

A contributor to the Economix blog for The New York Times, Reinhardt wrote, “In the arsenal now being assembled on the payment side of health care to address rising costs, reference pricing may well turn out to be the sleeper, because it is a potentially powerful method of ‘putting the patient’s skin in the game,’ the delicate phrase we use for ‘cost-sharing by patients.’”

Reference pricing is a sleeper no longer. It’s getting a lot of press lately and is the subject of a webinar at 1 p.m . ET today (see below for details).

It was mentioned in the big announcement from the Health Care Cost Institute (HCCI), which said on May 14 that it would work with three large health insurers to provide free consumer access to an online database of “the most accurate and timely information about the price and quality of health care services.” Starting early next year, HCCI said it will make price and quality data available from Aetna, Humana and UnitedHealthcare.

When collected from multiple insurers, the data essentially will serve as reference prices for consumers shopping for care, said David Newman, Ph.D., HCCI’s executive director. “I view what we plan to do, in part, as a reference price – analogous to what Edmunds.com does for those shopping for cars,” he said. “For individuals not covered by one of the participating insurers, consumers can come to the site and see the average price that sophisticated buyers paid for services in their location. The price seen will include copayments and deductibles. There will be a mean and statistics describing the variance in prices.

“While we intend ultimately to display prices from Medicare, Medicaid and commercial insurers, each system’s prices are theoretically and substantively so different that averaging them is not meaningful. We will display common procedures and bundles of services for inpatient and outpatient services and prescription drugs. In places where we have enough data, we may even distinguish prices for children from those for adults,” he said.

Paul Demko of Modern Healthcare said the HCCI project could transform the accessibility of claims payment data for consumers. Quoting Katherine Hempstead, a senior program officer at the Robert Wood Johnson Foundation, Demko wrote, “The potential is enormous. It’s just a tremendous public service.”

Also last week, both the AP and The New Republic published articles about a reference pricing effort from the federal Centers for Medicare & Medicaid Services and other departments.

In the AP Big Story  on May 16, Ricardo Alonso-Zaldivar explained that the Obama administration approved a new cost-control strategy called reference pricing. “It lets insurers and employers put a dollar limit on what health plans pay for some expensive procedures, such as knee and hip replacements,” he wrote.

In a list of frequently asked questions published on May 2, CMS explained reference pricing as follows:

Reference pricing aims to encourage plans to negotiate cost effective treatments with high quality providers at reduced costs,” according to the answer to one question. “At the same time, [CMS and other] departments are concerned that such a pricing structure may be a subterfuge for the imposition of otherwise prohibited limitations on coverage, without ensuring access to quality care and an adequate network of providers.  Accordingly, the departments invite comment on the application of the out-of-pocket limitation to the use of reference based pricing. The departments are particularly interested in standards that plans using reference-based pricing structures should be required to meet to ensure that individuals have meaningful access to medically appropriate, quality care.” Comments are requested by Aug. 1.

Jonathon Cohn, in The New Republic, picked up on the AP story and explained that under a tentative decision by the Obama Administration, employers and insurers may be able to use reference pricing to shift costs to workers and plan members without much oversight. While reference pricing has the potential to control costs by forcing providers to compete on price, Cohn added that without safeguards beneficiaries won’t understand how reference pricing works and could face high costs for some services as a result.

For those who want to learn more about reference pricing, the National Institute for Health Care Management will host a webinar today, May 27, at 1 p.m. ET: Reference Pricing: Stimulating Cost-Conscious Purchasing and Countering Provider Market Power. During this event, James C. Robinson, Ph.D., the Leonard D. Schaeffer professor of Health Economics and director of the Berkeley Center for Health Technology at the University of California, Berkeley, will discuss his research on reference pricing. His work also is available as a PDF from NIHCM.

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Joseph Burns

Joseph Burns is AHCJ’s health beat leader for health policy. He’s an independent journalist based in Brewster, Mass., who has covered health care, health policy and the business of care since 1991.