Catalyst for Payment Reform

Health Care Prices Vary, but Your Costs Don’t Have to

Health Care Prices Vary, but Your Costs Don’t Have to

Here’s a new take on Goldilocks we bet you’ve never heard before.  After years of fleeing from angry bears, Goldilocks needed a knee replacement and started shopping around for care.  She found one provider charging $50,000 for the procedure, another provider charging $25,000, and a third charging $10,000.  Once again, Goldilocks is faced with a choice governed by wide variation.  But without knowing the quality of care of each provider or even the availability of providers in her local market, how is Goldilocks to know which option is just right?

If this story sounds strangely familiar, and you find yourself empathizing with our health care shopper, you’re not alone.  We all know that prices for health care services and procedures can vary widely across the market, with some providers charging way too much for care.  This price variation can be frustrating for employers and other health care purchasers seeking high-value health care for their employees.  One solution is reference pricing.

Employers, purchasers, and health plans may look to implement reference pricing when there is high variability in price for a particular elective service or procedure in the market.  The health plan or purchaser will set a standard price for the service that they think is the appropriate dollar amount.  This is called the reference price.  Quality can also be factored into the reference price by identifying high-quality providers who are willing to perform the service at or below the reference price.

By requiring employees to pay the difference, if any, between the reference price and what their provider charges, they are encouraged to seek value – or in this analogy, just the right combination of cost and quality.

If you’re an employer or other health care purchaser interested in learning more about reference pricing, check out our webinar Revisiting Reference Pricing as Suzanne Delbanco, Executive Director of CPR, shares her insight on how reference pricing can help you get the most value out of your health care purchasing strategy!

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