In a pilot program designed to control costs, the California Public Employees Retirement System (CalPERS) announced last year that its top payment to a hospital for a member’s knee replacement would be $30, 000. The CalPERS organization gave its members a list of 46 hospitals which, investigators had ascertained, provided quality joint replacement care and charged less than $30, 000 for the procedure. Members had a choice. They could either choose one of the 46 facilities on the list, which would result in their paying little to no out-of-pocket costs beyond deductible or co-insurance, or else pay the difference if they used a costlier facility that was not on the list.
The result? The price of members’ hip and knee replacement surgeries dropped by 19% in one year—from $35, 408 to $28, 695, per surgical-related admission. And patients experienced improved outcomes.
“We are pleased to see this program resulted in both substantial savings for CalPERS, and, on several measures, with higher quality outcomes for its members, ” said Sam Nussbaum, M.D. “Our programs demonstrate the power of innovative product design, aligned financial incentives and better informed decision-making.”
Ann Boynton, deputy executive officer for Benefit Programs Policy and Planning for the California Public Employees’ Retirement System, which has 356, 543 members in California served by WellPoint’s affiliated health plan, said, “This program was an effective tool in managing costs as we all know that current spending levels are not sustainable if we’re going to provide benefits that are affordable now and into the future.”
An analysis of the program found that the use of designated facilities increased by 21% by CalPERS members, member out-of-pocket costs remained relatively flat from 2011 to 2012, outcomes were either equivalent or better in the group using the designated facilities, and CalPERS members had significantly lower 30-day general infection rates than did non-CalPERS members.
The writer of “Money & Co”, published by the Los Angeles Times, commented that the CalPERS findings could motivate other employers to cap prices to encourage competition and reduce health costs.
