Calif. public employees group finds a way to slash medical costs

calpers-headquartersWith 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.

Frakt examines research published in peer-reviewed medical journals, including Health Affairs, JAMA Internal Medicine and PubMed, and found that, “Calpers patients flocked to lower-priced hospitals and outpatient surgical centers. Prices and total spending for the procedures plummeted.”

To be sure, the Californians had choices: there were dozens of hospitals performing these select procedures at a level of acceptable quality, as measured by “things like low readmission rates and high rates of use of guideline infection controls.” They also confronted a highly competitive market in which the cost of knee or hip replacements could be done for $30,000 or less, while many hospitals charged $100,000 for such procedures.

Frakt underscores that reference pricing has its limits because it demands transparency in what hospitals charge−never a certainty, despite efforts to fix this. Prospective patients must be able to negotiate or to shop around for better or best prices, something which they can’t always do (in emergencies, for example, or when only a few or specific hospitals offer specialized care, or when physicians they desire treatment from hold privileges only at specific institutions.) Reference-pricing patients also must be seeking care in a market with suitable hospital competition and choices.

With health care costs comprising roughly 17.5 percent of the nation’s gross domestic product and Americans spending more but seeing poorer outcomes than their counterparts in most Western industrialized nations, we need more evidence-based, real cost-cutting initiatives like this one from Calpers. As Frakt also cautions, care also must be exercised so moves to slash costs don’t reduce the quality of care.

Patrick Malone & Associates, P.C. listed in Best Lawyers Rated by Super Lawyers Patrick A. Malone
Washingtonian Top Lawyer 2011
Avvo Rating 10.0 Superb Top Attorney Best Lawyers Firm
Contact Information