WellPoint Inc., the nation's largest health insurer, found that they were able to cut medical costs by 19 percent without sacrificing any of the services rendered by capping the price of certain surgeries, Bloomberg Reports.
The California Public Employees Retirement System (CalPERS) informed its Anthem Blue Cross members that they would only pay up to $30,000 for a knee or hip replacement, which, predictably forced many to go shopping for cheaper hospitals to perform the surgery. Shockingly the policy also made 40 high priced hospitals in California lower their prices drastically to fit under the $30,000 cap to avoid losing patients, according to the Los Angeles Times.
Insurance companies are turning to cost capping as a method of steering their customers away from more expensive hospitals that don't provide outcomes that are noticeably better than the lower cost hospitals. Employers are embracing cost capping as a way to deal with the wide variation in expenses found at hospitals, Kenneth Goulet, a WellPoint executive vice-president, told Bloomberg.
"There is a lot of momentum building," Goulet said. "Employers have wanted to see the tools and the proof that it works, and now that they're seeing that, there seems to be pretty heavy interest."
The average charge for a joint replacement at the higher priced hospitals in California fell from $43,308 in 2010 to $27,149 in 2013, a whopping 37 percent reduction. In contrast, hospitals that were already under the cap provided by CalPERS had an average price of $24,528, a reduction of merely three percent, according to the Los Angeles Times.
"There were striking reduction in some of the higher-priced facilities," James Robinson, a health economics professor at US Berkeley, said. Robinson continued by saying that the pricing strategy "has received a lot of interest in the large-employer world because it does seem to be an antidote to aggressive hospital pricing."
Sam Nussbaum, the chief medical officer for WellPoint, analyzed data from 2009 and found that while prices for joint replacement surgery could range from as inexpensive as $15,000 to an astronomical $110,000 the price had almost no correlation with the outcome of the surgery, according to Bloomberg.
"It's starting to move forward," Goulet told Bloomberg. "Employers seem very comfortable saying to employees, 'I want you to shop for medical care, just like you do for a car or for clothes or for other purchases.'"
