With 450,000 California members, a giant public employee group in the Golden State has successfully found one way to curb medical costs, slashing prices for a set of common procedures by 20%, and saving its members millions of dollars.
It all starts with an idea radical in many parts of American health care: that hospitals should have to disclose their true costs up front so patients have a chance to vote with their feet.
As reported by health economist Austin Frakt in the New York Times’ “Upshot” column, the California Public Employees Retirement system, aka Calpers, in 2011 put in place a new payment plan for members hospitalized for knee and hip replacement surgery, colonoscopies, cataract removal surgery and other common elective procedures. Under this “reference pricing,” Calpers capped what it would pay to hospitals for the various operations, while still allowing its members to choose where they wanted to be treated; if patients picked pricier hospitals, they paid the difference. It could amount to thousands of dollars.