Tiered Provider Networks and
Reference Pricing:
Promise and Pitfalls
Lynn Quincy
FUSA Health Action
January 24, 2014
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Tiered Provider Networks
Hospitals and/or physicians grouped into tiers
based on quality and cost metrics.
Patient cost-sharing lowest for the “high
value” tier, incenting patients to use those
providers.
Also known as:
 Value-based provider networks
 Select provider networks
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Narrow Networks
 Only one in-network tier is offered,
nominally consisting of providers that
are the best value.
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Reference Pricing
 To address variation in pricing, health plan identifies a
cap (“reference price”) for a clinical service.
Examples
 CalPERS: Hip Replacement
$15,000
$30,000
$110,000
 Safeway: Colonoscopy
$848
$1,500
Source: Wilson, Private Sector Approaches to Health Care Cost Containment: A
Closer Look, Consumers Union and RWJF, November 2013.
$5,984
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Reference Pricing
 Enrollees get a list of providers who
accept the reference price
 Enrollees pay the balance if the
provider charges more than the
reference price
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Reference Pricing:
Dramatic Results
 After instituting reference pricing for
hip/knee replacements, CalPERS
experienced 20.2% decline in
spending. (A small portion even
accrued to enrollees!)
 Savings due to:
 price reductions from higher cost
facilities
 greater share of procedures being
conducted at “value” priced facilities
Source: Robinson & MacPherson. “Payers Test Reference Pricing and Centers of Excellence
to Steer Patients to Low-Price and High-Quality Providers,” Health Affairs 2012.
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Why choose $30,000 for allowed
charges?
• High volume, high quality facilities with geographic dispersion
were charging less than $30,000
95%
percentile
$74,721
5% percentile
$12,588
$30,000
Source: University of California, Berkeley analysis, June 2013. Data for 2008 to 2010. Permission granted for use in
this slide deck.
Allowed charges for the hip or knee replacement
pre- and post- implementation of value based
purchasing design program
95%
percentile
Pre -- $74,721
Post -$40,302
Pre-Implementation
$30,000
Post-Implementation
Source: University of California, Berkeley analysis, June 2013. Pre-implementation data for 2008 to 2010 and postimplementation data for 2011-2012.. Permission granted for use in this slide deck.
Good for Consumers?
Considerations:
 Markets have tremendous variation in provider
charges, not reflecting quality differences
 Consumers need relief from rising health costs
 Consumers believe that high cost=high quality
 In surveys and structured focus groups,
consumers have a preference for narrower
networks vs. paying higher premiums or higher
cost-sharing, as long as quality isn’t affected.
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Consumer Concerns
 Can consumers navigate this increased
complexity?
 Poor consumer-facing measures of network
adequacy – will a consumer know the plan
features a narrow network?
 Do tiered/narrow networks increase
“surprise” out-of-network charges?
 If providers are good at some things but
not others, what tier do they go to?
 Are some networks being created with little
regard for quality?
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How Is Provider Quality Measured?
 National Quality Forum has endorsed
700+ provider performance measures
 Survey of large commercial plans
shows tremendous variation in which
measures are used
 Little research showing which
measures are effective
A. Higgins, “Provider Performance Measures in Private and Public Programs: Achieving12
Meaningful Alignment with Flexibility to Innovate,” Health Affairs 32, no. 8 (2013)
Health Plans’ Use Of Performance Measures, By Type Of Measure.
Source: Higgins A et al. Health Aff 2013;32:1453-1461
©2013 by Project HOPE - The People-to-People Health Foundation, Inc.
How Is Provider Quality Measured?
 Commonly used measures focus on:




cardiovascular conditions,
diabetes,
preventive services, and
patient safety
 What if we care about maternity?
A. Higgins, “Provider Performance Measures in Private and Public Programs: Achieving14
Meaningful Alignment with Flexibility to Innovate,” Health Affairs 32, no. 8 (2013)
Thank you!
Please email with
questions:
lquincy “at” consumer.org
Health cost resources
available on:
www.consumersunion.org/healthcare-costs
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