By using this site, you agree to the Privacy Policy and Terms of Use.
Accept
Health Works CollectiveHealth Works CollectiveHealth Works Collective
  • Health
    • Mental Health
    Health
    Healthcare organizations are operating on slimmer profit margins than ever. One report in August showed that they are even lower than the beginning of the…
    Show More
    Top News
    improving patient experience
    6 Ways to Improve Patient Satisfaction Within Hospitals
    December 1, 2021
    degree for healthcare job
    What Are The Health Benefits Of Having A Degree?
    March 9, 2022
    custom software development is changing healthcare
    Digital Customer Journey Mapping and its Importance for Healthcare
    July 21, 2022
    Latest News
    Grounded Healing: A Natural Ally for Sustainable Healthcare Systems
    May 16, 2025
    Learn how to Renew your Medical Card in West Virginia
    May 16, 2025
    Choosing the Right Supplement Manufacturer for Your Brand
    May 1, 2025
    Engineering Temporary Hospitals for Extreme Weather
    April 24, 2025
  • Policy and Law
    • Global Healthcare
    • Medical Ethics
    Policy and Law
    Get the latest updates about Insurance policies and Laws in the Healthcare industry for different geographical locations.
    Show More
    Top News
    Can Thinking Younger Make You Live Longer?
    April 20, 2011
    Image
    Obesity’s Outlook Unchanged
    June 13, 2011
    When It’s An Emergency Elderly Not Treated As Well in Hospitals
    July 16, 2011
    Latest News
    Building Smarter Care Teams: Aligning Roles, Structure, and Clinical Expertise
    May 18, 2025
    The Critical Role of Healthcare in Personal Injury Recovery: A Comprehensive Guide for Victims
    May 14, 2025
    The Backbone of Successful Trials: Clinical Data Management
    April 28, 2025
    Advancing Your Healthcare Career through Education and Specialization
    April 16, 2025
  • Medical Innovations
  • News
  • Wellness
  • Tech
Search
© 2023 HealthWorks Collective. All Rights Reserved.
Reading: Reference Pricing and the Role of the Government
Share
Notification Show More
Font ResizerAa
Health Works CollectiveHealth Works Collective
Font ResizerAa
Search
Follow US
  • About
  • Contact
  • Privacy
© 2023 HealthWorks Collective. All Rights Reserved.
Health Works Collective > Business > Finance > Reference Pricing and the Role of the Government
BusinessFinanceHealth ReformPolicy & LawPublic Health

Reference Pricing and the Role of the Government

DavidEWilliams
Last updated: November 12, 2013 9:00 am
DavidEWilliams
Share
4 Min Read
SHARE

Free market healthcare

Free market healthcare

Reference pricing for medical procedures constrains costs by capping the amount an insurer will pay for a procedure and making the patient pay the extra amount. In California, Calpers has been successful in using reference pricing for knee surgery, as described in a recent Wall Street Journal article (Comparison Shopping for Knee Surgery).

In today’s letters section, a physician from New York endorses reference pricing and uses the Calpers experience as a cudgel to beat up on a government role:

More Read

Medical Necessity
Best Denial Management Strategy: Avoid Denied Claims
Medicare’s Sustainability and Disproportionate Impact on Women
Lyme Disease Vaccine: Cautionary Tale or Opportunity for Renewed Activism?
Affordable Care Act – New Hurdles with Contraception
Sensors Offer New Power to Improve Health

“Not only is it economically sound in encouraging competition and skin in the game, which always leads to lower prices and better quality like every other commodity and service in the free market, it literally requires zero legislation or bureaucracy. I am certain Calpers saved more money applying this principle than any convoluted scheme Washington has in mind.”

Reference pricing is a great cost-saving idea and I’d like to see more of it. But it’s a pretty poor argument for the superiority of the free market in health care. Consider:

  • Medicare pays somewhat different rates for different hospitals, but those are intentional differences based on geography and teaching status. Meanwhile private payers pay a much wider range of prices –for no explicit reason. Look closely at the wording in the original article: “Calpers was upset after noticing it paid between $20,000 and $120,000 for the same procedure across the state, without commensurate differences in outcomes.” Noticing? Why did it take so many years (decades even) for Calpers to wake up and even notice what was going on? Unfortunately health plans and employers have not shown an interest in price differences nor a willingness to do much about them
  • In reference pricing schemes, the Medicare price is often used as the reference price. In other words, commercial health plans and employers are just trying to copy what Medicare already does! Not only that, but they tend to set the price higher than the Medicare price because they lack sufficient negotiating power, skills, or incentives
  • Reference based pricing only works for a subset of procedures. Knee replacement is a good one because it’s elective and easy to characterize. But there will be problems trying to extend this approach to other big areas of cost where the patient doesn’t have time to decide in advance where to go and where the services to be received are unpredictable. Meanwhile Medicare pays a set price and doesn’t wait around to “notice” that things are out of whack

I do agree with the letter writer that greater patient activation is a positive thing. But it’s naive to assert that applying free-market principles is a panacea. As a country we have chosen a mixed government/free-market model. Both the public and private sectors have a lot of work ahead of them to improve quality and constrain costs. A closer look at the Calpers reference pricing experiment reveals just how poor a job the private sector has done, while revealing some of the advantages of a big payer like Medicare that has the power to dictate pricing.

(photo: dmixo6 via photopin cc)

TAGGED:health insurancereference pricing
Share This Article
Facebook Copy Link Print
Share

Stay Connected

1.5kFollowersLike
4.5kFollowersFollow
2.8kFollowersPin
136kSubscribersSubscribe

Latest News

Clinical Expertise
Building Smarter Care Teams: Aligning Roles, Structure, and Clinical Expertise
Health care
May 18, 2025
Grounded Healing: A Natural Ally for Sustainable Healthcare Systems
Grounded Healing: A Natural Ally for Sustainable Healthcare Systems
Health
May 15, 2025
Learn how to Renew your Medical Card in West Virginia
Learn how to Renew your Medical Card in West Virginia
Health
May 15, 2025
Dr. Klaus Rentrop Shares Acute Myocardial Infarction heart treatment
Dr. Klaus Rentrop Shares Acute Myocardial Infarction
Cardiology
May 13, 2025

You Might also Like

Minnesota Miles Ahead on Obamacare Enthusiasm upon Obama’s Re-election

November 13, 2012

Cognitive Risk Declines with Activity

June 22, 2011

Second Annual DEA Drug Take Back Day–Saturday April 30, 2011

April 28, 2011

Fight the Flu. It Starts with You.

January 13, 2013
Subscribe
Subscribe to our newsletter to get our newest articles instantly!
Follow US
© 2008-2025 HealthWorks Collective. All Rights Reserved.
  • About
  • Contact
  • Privacy
Welcome Back!

Sign in to your account

Username or Email Address
Password

Lost your password?