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Companies Steering Workers To Lower Priced Medical Care

Sarah Gardner wants her company’s employees to be savvy medical shoppers.

So this year, she rolled out a plan that sets limits on how much the company will pay toward a range of tests and procedures, from MRIs to hysterectomies. Workers at Buffalo-based Prodigy Health now know to call their employee insurance plan to find a list of local doctors and facilities that meet the price. Or they can choose to go to a higher-price center elsewhere in the insurer’s network and pay the difference themselves.

Companies Steering Workers To Lower Priced Medical Care

Before the new program, workers’ incentive to shop around was limited because they had no idea — or any easy way to find out — that prices for many types of medical treatments varied widely. A test at one center might be priced at $3,700, while “right down the street they could get it for $900,” says Gardner, the vice president of benefits at Prodigy, which provides benefit management for self-insured employers.

Other employers and insurers are pursuing the same strategy, experimenting with ways to slow rapidly rising spending on medical care. Some, like Prodigy, are going beyond simply offering high-deductible insurance to being more directive, using financial incentives to promote doctors, hospitals or medications they’ve deemed more cost efficient.

Safeway employees in the San Francisco Bay Area, for example, face higher payments if they choose centers that cost more than $1,500 for a routine colonoscopy. And in January, the giant California Public Employees’ Retirement System (CalPERS) said it would not pay more than $30,000 toward knee or hip replacement. Workers who choose a hospital that costs more pay the difference. Next year, the program will be expanded to outpatient colon cancer tests, as well as some surgeries, including cataract repair for the 345,000 people enrolled in CalPERS’ preferred provider plans.

Employers say they hope the efforts, often called “reference pricing,” will get patients to act more like consumers — and drive down the cost of some procedures.

“This sends a signal to (medical) providers about what is considered a reasonable and acceptable price,” says David Lansky, who is closely watching the California efforts by Safeway and CalPERS from his post as president and CEO of the Pacific Business Group on Health, a San Francisco-based coalition of employers.

Companies Steering Workers To Lower Priced Medical Care

Sarah Gardner, the vice president of benefits at Prodigy Health, rolled out a plan that sets limits on how much the company will pay toward a range of tests and procedures, from MRIs to hysterectomies.

Still, patient advocates fear the trend may leave workers not only footing more of the cost of health care, but also choosing among providers mainly with information on price, not quality.

Kathleen Stoll at the advocacy group Families USA worries that some employers may be “simply picking an arbitrary number” for the price they’re willing to pay and not considering “accessibility (of the centers) or quality.”

Medicare, some private insurers and a few states track a few quality measures, such as mortality rates at hospitals, but there is generally little information on the outcomes of specific procedures, especially at facilities that are not part of a hospital, says Elliott Fisher, a Dartmouth Medical School professor well known for his research into quality and cost variation in medical care.

“Cost doesn’t tell you anything about quality,” Fisher says. “Americans confuse higher cost with quality, which in health care is not necessarily so.”

Lansky agrees that a lack of data on quality is a concern, as it is even with high-deductible plans, which can require workers to spend thousands of their own dollars before coverage begins.

“The criticism has been that it’s not fair to give people cost responsibility without the ability to make quality decisions,” says Lansky. “Maybe the $500 colonoscopy is done in a terrible factory-like environment, and the $1,200 one is better, but we don’t know.”

Gardner says her workers, many of whom are nurses, did raise the issue.

When she broached it last November, “Their main concern was, ‘Are you going to send me to some low-quality provider just to save money?’ ” recalls Gardner.

She countered by pointing out that the providers who met reference prices were ones employees were already using. “Pretty much the places we suggest they go are the big places, the well-known places.”

Checking medical claims

Before officially rolling out the program in March, Prodigy hired an outside firm called Healthcare Blue Book to comb through Prodigy’s medical claims spending, looking particularly for tests and procedures for which there was high demand and wide price variation.

Finding Help On Pricing, Quality

Consumers looking for cost or quality information on medical care are often stymied. A few insurers provide specific costs for procedures, while others give ranges. There are also a few national websites. Cost data vary from what is actually paid to estimates based on “charges,” or the list price before insurers negotiate discounts. Here are some resources:


  • FAIR Health: Estimates out-of-network costs for some medical and dental procedures that can be customized by zip code.
  • Healthcare Blue Book: Also customizable by zip code, the site estimates payments that providers will accept from insurance companies.
  • Oregon Health Authority: Average payments to Oregon hospitals for a set of treatments.

Quality Measures

  • Hospital Compare: Medicare’s Hospital Compare includes a variety of measures to compare specific hospitals.
  • The Leapfrog Group: Assesses hospital performance on some selected quality measures.
  • RWJF: Links to a variety of national reports on quality.

“You could easily see who were the most cost-efficient providers,” she said.

Working with the Blue Book information, Prodigy eventually settled on nine broad categories of tests or procedures that would fall under the new program. Included are imaging services, such as computed tomography (CT scans), sleep apnea tests and some non-emergency surgeries, including arthroscopic knee procedures. What Prodigy pays for each service varies based on local costs in the cities where its 1,200 covered employees live, including Buffalo; Minneapolis; Columbus, Ohio; Evansville, Ind.; and Okemos, Mich.

The rate is set at about the median (half were higher and half were lower) that Prodigy had paid in the past for the services, says Gardner. About 90 percent so far have chosen to go to medical providers who meet the price limits, she says. The rest go to higher-price centers and pay the difference themselves.

In the program’s first two months, Prodigy saved an estimated $17,000. But Gardner says her main goal is not so much saving money as arming workers with information and getting them to pay attention and ask questions.

“Just having people pay attention to it is huge,” says Gardner. “They’re now asking the questions they never asked before: Is this test necessary? Can I do it at a different facility?”

Facing challenges

The idea of having employees pay the difference for higher-cost services is not new. About 39 percent of large employers surveyed in an August National Business Group on Health report said they use the technique in their prescription drug programs, often by requiring workers who want a brand-name drug when a generic is available to pay the difference. Some employers encourage workers to use “high-performance” networks of doctors or hospitals by lowering their co-payments if they seek care there.

But only about 1 percent of employers in the August survey use reference pricing like Prodigy, for lab tests, radiology exams or other medical services.

The approach faces challenges. For one thing, it can be hard to explain to employees. Prodigy, for example, hired someone solely to help workers select a facility that meets the price limits. Also, patients may be hesitant to question their doctor about costs or reluctant to switch to a different physician or hospital.

Focus groups show that people generally don’t like shopping around for health care, says Jack Hoadley, research professor at the Health Policy Institute at Georgetown University. “It’s one thing to go from store to store to see how much toilet paper costs, but with doctors, you don’t have an easy way to find out. It feels unnatural and uncomfortable to ask a doctor how much they would charge.”

Still, the trend is further fueling efforts by employers and other groups to push for more quality data, Lansky says. He recalls a recent conversation with members of the American Gastroenterological Association who are developing a registry that will eventually track the quality of colonoscopy providers. “They don’t want to see a market where (only) the cheapest places do well,” he says. “They want to reward physicians who are doing high-quality care and put in place a system that makes that visible.”

Checking on doctors

Consumers can’t yet check the registry to find out if their doctor does a better job than one across town. It is under development, says Joel Brill, chief medical officer for the AGA’s digestive health project, who hopes employers and insurers work with the doctors.

“We would welcome inquiries by the likes of Safeway or CalPERS to work collaboratively with us to help develop” what to track and measure in the registry, he says.

Anthem, the insurer running the new hip and knee program for CalPERS, says it will track the outcomes to make sure “they are at least as good” as what was seen before the change, says medical director Jeff Kamil. About 90 percent of the hospitals in Anthem’s California network met the reference price for hip or knee replacement, including Cedars-Sinai, UCLA and other well-known medical centers.

Anthem provides transportation costs for patients who live too far from one of the centers. About 77 percent of the covered workers having the procedure since launch have gone to one of the reference-price hospitals, Kamil says.

Ann Boynton, deputy executive officer of benefit programs policy and planning at CalPERS, says the 46 hospitals were chosen after CalPERS analyzed what it was paying for hip and knee replacements under its previous arrangement and found it ranged from as little as $15,000 to more than $100,000.

Kamil says the $30,000 limit for hips and knees is not a median but was selected after looking at the range in costs and taking off the really high and really low numbers. The program, he says, should save CalPERS about 20 percent of the cost of the procedures.

“This is the future for select procedures where people can shop,” says Kamil.

Related Topics

Cost and Quality