Sunday, September 08, 2013

A Remedy for Cost

We claim to be highly concerned about the high and rising cost of health care, but we are slow to do anything about it.

The August issue of the journal Health Affairs included an article reporting on a program in California in which Calpers, the insurance company serving government employees and retirees, offered beneficiaries a health insurance policy that classifies providers into two groups – one charging higher prices and the other lower prices.   For services obtained from the low cost group, the regular co-pay and deductible provisions of the policy apply.  For the high cost group, patients also pay the difference between amounts set by the policy and what the provider charges.  The goal was to reduce cost by providing patients with a financial incentive to seek out providers that charge the lower prices.  In the article, two researchers at the University of California at Berkeley reported the results of a study they had conducted to see whether and to what extent the program had achieved its objective.

The results were significant.  The study focused on hip and knee replacements and each year studied the more than 400 patients who participated in the program and obtained those treatments.  During the first year after the program was implemented, services obtained from the low price group increased by over 20 per cent compared with the previous year.  Prices charged by the low price group went down 5.6 per cent and by the high price group 34.3 per cent.  The researchers calculated that the program saved Calpers $2.8 million in 2011. 

I have long believed that threatening high cost providers with a loss of patients would be an effective way to get them to become serious about cost reduction – more so than offering them financial rewards for doing so, as Medicare is doing.  The Calpers experience seems to bear that out. 

One would think that others would be quick to adopt the Calpers program, but apparently the fear of market forces in health care remains strong enough to prevent taking advantage of them – or at least to slow down the process to a crawl. 

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