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
    An Expert’s Guide To Building and Improving Endurance
    June 30, 2022
    medical assistants
    What Do Medical Assistants Do On a Day to Day Basis?
    April 5, 2022
    superfoods to help with prostate health
    10 Healthy Foods That Can Help Protect Your Prostate
    August 29, 2022
    Latest News
    5 Steps to a Promising Career as a Healthcare Administrator
    August 3, 2025
    Why Custom Telemedicine Apps Outperform Off‑the‑Shelf Solutions
    July 20, 2025
    How Probate Planning Shapes the Future of Your Estate and Family Care
    July 17, 2025
    Beyond Nutrition: Everyday Foods That Support Whole-Body Health
    June 15, 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
    healthcare cost crisis
    What If the Health Care Cost Crisis Solves Itself?
    May 11, 2013
    Do You Need Life Insurance? What Does It Cover?
    December 23, 2022
    HIE metal plans
    The Four “Metal Plans” of Health Insurance Exchanges
    May 28, 2013
    Latest News
    How IT and Marketing Teams Can Collaborate to Protect Patient Trust
    July 17, 2025
    How Health Choices and Legal Actions Intersect After an Injury
    July 17, 2025
    How communities and healthcare providers can address slip and fall injuries with legal awareness
    July 17, 2025
    Let Your Lawyer Handle the Work Before You Pay Medical Costs
    July 6, 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
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

healthcare transformation
Why Healthcare Needs Continuous Transformation
Disease Registries Help Doctors Share Information
Massachusetts Insurance Companies Reveal Health-Cost Calculators
How the Cleveland Clinic Controls Health Care Costs
Bariatric Surgeries Per Country

“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

technology in medical research
The Tools Helping Medical Researchers See the Full Picture
News Technology
August 3, 2025
5 Steps to a Promising Career as a Healthcare Administrator
5 Steps to a Promising Career as a Healthcare Administrator
Health
July 31, 2025
holistic dental
Holistic Dentist Services Are Natural and Safe
Dental health Specialties
July 28, 2025
botox certification
Help Improve People’s Skin Health Via Botox Certification
Skin Specialties
July 22, 2025

You Might also Like

Global HealthcareHealth careHome HealthMental HealthPublic Health

Infographic: Stats And Facts About Sleep That Everyone Should Know

September 14, 2019

Anatomy of a Doctor – Infographic

December 21, 2011

Issue Brief Finds Twelve States Have Obesity Rate Above Thirty Percent

August 15, 2012

Sitting Causes Cancer!

January 24, 2012
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?