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Coming: Reference Pricing, Excellence Centers

September 10, 2012
Written by: , Filed in: Cardiac Imaging, Diagnostic Imaging, Practice Management
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Heard about reference pricing and centers-of-excellence contracting? If not, you will.

An article in the September issue of Health Affairs details these two health insurance benefit designs. Some employers and insurance companies are using them to control costs for expensive nonemergency procedures—such as advanced imaging. Article authors James C. Robinson, PhD, and Kimberly MacPherson are director and co-director, respectively, of the Berkeley Center for Health Technology at the University of California, Berkeley.

Here’s a quick definition of each strategy:

  • Reference pricing: An insurer sets a reference price for a procedure or service—the maximum it will pay with no co-pays or other extra charges. A patient who uses a provider that charges the reference price pays nothing out of pocket. A patient who uses a provider that charges more than the reference price pays the entire extra cost out of pocket.
  • Centers-for-excellence contracting: For a certain procedure or service, an insurer sends all patients in an entire region to a single provider that has agreed to offer a discounted price in exchange for a higher volume of patients. Again, a patient who uses the approved provider pays nothing out of pocket and may even have travel costs covered. Patients who opt to receive the procedure or service elsewhere have to shell out for co-pays and co–insurance payments.

These payment plans kick in only after a procedure or service has been ordered. Therefore, the article notes:

Reference pricing and centers-of-excellence contracting exert their influence on cost primarily by reducing the average price of tests and treatments, not by reducing utilization. They do not focus on the difficult question of whether a particular intervention is appropriate but rather on where that intervention should take place.

The article also points out the potential for tension between insurers and providers: “Costs are controlled more effectively if the reference-price level is small because this stringency channels more volume to preferred providers. But stringency can stimulate resistance from excluded providers, which may argue they provide higher quality than chosen providers, are essential community institutions, or pursue mission-related activities such as research and teaching.”

Such pricing models, especially reference pricing, could actually provide a marketing opportunity for an excluded provider. An ad might say: “Sure, you can get this procedure done elsewhere for less. That’s because the insurance companies basically held an auction, and those other providers were the low bidders. But do you really want to trust your body to the low bidder? We charge a little more because it costs more to use the most sophisticated scanners and employ the most skilled professionals. So you can go to the low bidder. Or you can come to us, pay just 10 percent more, and know that you’re in the hands of the best.”

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Related seminar: UCSF Radiology Review: CLINICAL HIGHLIGHTS

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