(Bloomberg) -- The nation’s largest pension fund and health insurer WellPoint Inc. cut medical costs 19% by capping the price of some surgeries, in the latest sign payers are taking a tougher line against rising hospital claims.
The California Public Employees Retirement System saved $5.5 million under a pilot project it started with WellPoint in 2011, according to a study released by the Indianapolis-based insurer at a Baltimore health conference Sunday. Retirees proved at least as healthy as those who didn’t opt for the lower-cost procedures, WellPoint said.
Hospital charges have come under renewed scrutiny as the government seeks to increase the number of insured Americans under the Affordable Care Act. Cost capping, which steers consumers away from high-priced providers that don’t produce better outcomes, is gaining currency among employers grappling with the wide variation in hospital expenses, says Kenneth Goulet, a WellPoint executive vice-president.
“There is a lot of momentum building,” Goulet says. “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.”
In May, the U.S. Medicare program released data for the first time on what it pays 3,000 hospitals, and the numbers showed the rates it pays for the same procedures can vary by thousands of dollars, even within the same city.
Wide variation
The California pension, known as Calpers, became a partner in the pilot program after a WellPoint analysis found similar hip and knee surgeries cost anywhere from $15,000 to $110,000 per patient, depending on the hospital. The 2009 data don’t show any improvement in outcomes based on price, says Sam Nussbaum, the carrier’s chief medical officer.
Starting in 2011, Calpers and WellPoint’s Anthem Blue Cross unit began steering members toward 46 hospitals that agreed to keep their costs below $30,000 -- known as the programs “reference price.” While workers could go to another provider, they were responsible for any additional costs.
About 400 members opted for the designated hospitals in 2011, a 21% increase over previous years. Calpers’ in-patient costs for hip and knee surgeries dropped to an average of $28,695 from $35,400, according to WellPoint.
The study was conducted by HealthCore, a research unit owned by WellPoint, and released at the AcademyHealth Annual Research Meeting in Baltimore.
’Not sustainable’
The program has proven to be “an effective tool in managing costs,” says Ann Boynton, Calpers’ deputy executive officer. “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.”
Members’ out-of-pocket costs for deductibles and coinsurance showed little change under the program, while health outcomes stayed steady or improved, Nussbaum says. Rates of both hospital-acquired infections and readmissions were lower, compared with a group of knee and hip patients who didn’t use the designated hospitals, according to the study.
The pension fund has 357,000 members in California covered by WellPoint. Since it started with reference pricing, 10 more hospitals have lowered their prices below the $30,000 threshold to gain access to the program, Nussbaum said.
Others are showing interest as well. In California, more than a dozen Anthem clients plan to adopt similar measures next year, says Goulet, the company executive.
Meanwhile, Kroger Co., the nation’s largest grocery-store chain, has implemented reference prices for a variety of imaging procedures, including MRIs and CT scans, he says. The Cincinnati-based company is using the program in 10 states, Goulet says.
“It’s starting to move forward,” he says. “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.”
