The largest public employees retirement system in the country - CalPERS - has plenty to gain from a drop in health care costs. After all, they cover 1.6 million employees, retirees and their families in California.
Now they're saying, they found a way to decrease the amount they've spent on knee and hip replacements by 19 percent in a year, which could have implications for other employer health plans.
Lisa Aliferis blogged about the CalPERS experiment in controlling costs right here on State of Health about a year ago. Aliferis wrote that they decided to tackle costs around these two surgeries, which cost them $55 million dollars a year in 2008.
Now, you might not think there would be much difference in the price for getting a knee or hip replacement across the state. But think again. CalPERS asked Anthem Blue Cross — which manages its PPO plans — to examine the range of prices for these operations in California.
Anthem came back with the startling information that CalPERS was paying $15,000 on the low end to $110,000 on the high end, a more than seven-fold difference from lowest to highest.
“So we started asking ourselves,” Kathy Donneson, Chief of the CalPERS Heatlhy Plan Administration Division told me, “what are we getting from the $110,000 surgery that we couldn’t get from the $15,000 surgery?”
That’s when CalPERS turned to what’s called a “value based purchasing” approach for elective hip and knee replacements, starting with its non-Medicare population. CalPERS set a threshold price of $30,000 for the hospitalization and device charges for these operations. That $30,000 is slightly higher than the average price CalPERS had been paying for a hip or knee replacement. Anthem identified 46 hospitals across the state which would do these operations at the threshold price.
Those PPO members who chose a hospital above the threshold price had to pay the additional costs out of pocket.
CalPERS's Donneson said that quality was an important consideration. Only institutions that scored a certain rank on a quality scorecard were included.