$83,000 In Savings On 3 Procedures – The Driver Of Transparency & Reference-Based Pricing

At the front of the HealthLeaders Magazine, they have a FactFile every month with data from Truven Health.  The one from March 2014 focused on price variation and transparency.  I thought I’d share a few of the charts.

This first chart shows their projections about the impact of a price transparency tool on cost savings over three years.  (BTW – If you’re looking for information on price transparency tools, I would go to Jane Sarasohn-Kahn‘s blog HealthPopuli and look at her posts on transparency – Part I, Part II, Part III, Part IV, and Part V).  Their projection was $6,786,000 in year 3 for an employer with 20,000 employees (or about 46,000 total covered lives if you assume a ratio of 2.3).

The other topic in the FactFile is about price variation and potential savings.  They looked at three procedures and the variation in pricing for them.  They then estimated the savings from those three procedures for an Chicago based employers.

As you can see, the variation is dramatic.  What this will eventually lead to is called “reference-based pricing” where payers will agree to pay a fixed amount (or reference price) for a procedure and consumers will have to use transparency tools to figure out which providers will meet that price or pay out of pocket to go elsewhere.  The hope is that this will drive down prices, make consumers aware of differences, and finally help people understand that price and quality are NOT correlated in healthcare.

Here’s a few articles to read on price transparency:

• Companies Steer Workers
• CALPERs Reference-Based Pricing
• Wellpoint Program Announcement