Re: increases in consumer cost sharing redirect patient volumes and reduce hospital prices for orthopedic surgery.

Some employers are implementing reference-pricing benefit designs, which establish limits on the amount they will pay for some procedures covered by employer-sponsored insurance. Employees are required to pay the difference between the employer’s contribution limit and the actual price received by the hospital. These initiatives encourage patients to select low-price facilities and indirectly encourage facilities to reduce prices to increase patient volume. We evaluated the impact of reference pricing on the use of and prices paid for knee and hip replacement surgery by members of the California Public Employees’ Retirement System (CalPERS) from 2008 to 2012, using enrollees in Anthem Blue Cross as a comparison group. In the first year after implementation, surgical volumes for CalPERS members increased by 21.2 percent at low-price facilities and decreased by 34.3 percent at highprice facilities. Prices charged to CalPERS members declined by 5.6 percent at low-price facilities and by 34.3 percent at high-price facilities. Our analysis indicates that in 2011 reference pricing accounted for $2.8 million in savings for CalPERS and $0.3 million in lower cost sharing for CalPERS members. E mployers have responded to the continued escalation in health care expenditures by increasing deductibles, copayments, and other forms of cost sharing for employees. In 2012, 31 percent of firms that offered health benefits used a high-deductible health insurance design, and 51 percent of employees with single coverage had an annual deductible of at least $2,000. Deductibles may reduce the use of preventive and primary care services while having only limited effects on the use of hospitals, because expenditures for high-cost services typically fall above the deductible limit.Yet hospitals account for 31 percent of health care expenditures and exhibit wide variance in the prices they charge. Some large employers have begun to implement insurance benefit designs that explicitly target hospital services, both to counteract perceived increases in hospital market power and to forestall the need to increase cost sharing for primary care services. Employers can limit the coverage of their insurance programs to a subset of the facilities in each geographic market, in the hope of obtaining lower prices from included facilities. Alternatively, employers can allow employees to use any hospital but establish a limit on what the employer will pay. This latter strategy, known as reference pricing, offers a broader range of choices to employees but requires them to bear more financial responsibility for their choices. The employer focus on benefit design and consumer cost sharing contrasts with the focus on doi: 10.1377/hlthaff.2013.0188