Reference pricing for ‘shoppable’ health care services steers consumers to low-cost providers

Joseph Burns

About Joseph Burns

Joseph Burns (@jburns18), a Massachusetts-based independent journalist, is AHCJ’s topic leader on health insurance. He welcomes questions and suggestions on insurance resources and tip sheets at joseph@healthjournalism.org.

Source: Robinson JC, Whaley C, Brown TT. Association of Reference Pricing for Diagnostic Laboratory Testing with Changes in Patient Choices, Prices, and Total Spending for Diagnostic Tests. JAMA Intern Med. Published online July 25, 2016. doi:10.1001/jamainternmed.2016.2492.

When Safeway, a grocery store chain, introduced reference pricing for the most commonly used clinical laboratory tests, spending on those tests dropped by 32 percent over three years, according to a recent study.

Using reference pricing, Safeway saved $2.57 million over the three years of the study (2011 to 2013). Of that amount, $1.05 million (41 percent) went back into consumers’ pockets, and the remaining $1.70 million accrued to Safeway, the study showed. Also, reference pricing led to a 32 percent drop in the average price that consumers paid for 285 different lab tests.

The researchers concluded that reference pricing can lead to savings for employers, workers and family members. JAMA Internal Medicine published the study online on July 25.

This result is significant because these lab tests are what the researchers called a “shoppable” service. The tests in the study were routine and not needed immediately for an emergency, so consumers have time to consider them. Also, most consumers can choose among several clinical labs, and since patients generally consider that all labs have relatively similar levels of quality, price becomes the overriding concern.

Writing for Reuters, Kathryn Doyle quoted James C. Robinson, PhD, the lead author, as saying, “There’s no reason to believe the quality of the tests varies across labs.”

For the study, employees got prices of covered tests for every clinical laboratory using a mobile information tool from a private company that gathers pricing data from large insurers and self-insured employers. For the most commonly prescribed test, a basic metabolic panel, prices among different labs ranged from $5.75 to $126.44. Prices for a lipid panel ranged from $8.85 to $74.92.

Robinson and his colleagues from the School of Public Health at the University of California, Berkeley, sought to determine what effect reference pricing would have on an employer’s efforts to steer consumers to clinical laboratories that charge lower prices for diagnostic tests.

Source: Robinson JC, Whaley C, Brown TT. Association of Reference Pricing for Diagnostic Laboratory Testing with Changes in Patient Choices, Prices, and Total Spending for Diagnostic Tests. JAMA Intern Med. Published online July 25, 2016. doi:10.1001/jamainternmed.2016.2492.

Under reference pricing, an employer or health insurer pays a set amount for health care services and patients pay the difference between this limit and the actual price. “In this study, we compare changes in laboratory prices and selection by employees before and after their employer (Safeway) implemented reference pricing for laboratory services and compare these findings with changes over the same period for policy holders of an insurer (Anthem) that did not use reference pricing,” the researchers wrote.

In a commentary on the research, Paul D. Ginsburg, PhD, explained that reference pricing can be applied only to services that are “shoppable,” meaning they are offered by more than one provider and can be scheduled. “It works best for those services that are most standardized and where variation in quality is less of a concern,” wrote Ginsburg, the director of the Leonard D. Schaeffer Initiative for Innovation in Health Policy at the University of Southern California.

Earlier this year, we covered the issue of how consumers find it difficult to shop for many health care services, mostly because prices are not available. Even when prices are available, many health insurers use narrow networks so consumers can choose among only a few hospitals and physicians. Often, insurers do not cover services from out-of-network providers at all.

For another look at how reference pricing drives down prices, see this article by Austin Frakt in The Upshot blog at The New York Times. Like the Safeway program, this one started in 2011 and patients who wanted a procedure at a higher-priced hospital paid the difference themselves.

One thought on “Reference pricing for ‘shoppable’ health care services steers consumers to low-cost providers

  1. Daniel Keller

    Are the labels reversed for the colored lines in the top figure? Otherwise, it looks like the control group (Anthem) fared better than Safeway, which had instituted reference pricing. Furthermore, the lines do not correspond to the listed prices at the time points. The orange line shows all prices less than $30, but the line is consistently above the $30 point. Similarly, for the blue line for 2011-2013, the prices are all less than $20, but the line is consistently above the $20 level.

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