July 29, 2016

How Safeway cut lab test spending by $2.6 million with reference pricing

Daily Briefing

    The average price Safeway paid for lab tests declined by about 32 percent after the grocery store chain's insurer implemented so-called reference pricing, according to a new study published in JAMA Internal Medicine.

    Reference pricing refers to when a payer sets a maximum amount it will reimburse for certain services and medications, with patients paying any remaining amount out-of-pocket. The practice, which is common in Europe, is designed to incent shopping around for health care services and reduce costs.

    Members ask: What are the warning signs of reference pricing—and how can we prepare?

    Study details

    In the new observational study, researchers examined the effects of reference pricing by tracking the amount more than 30,000 Safeway employees paid for 285 diagnostic tests after the store's insurer, Anthem, implemented reference pricing for lab tests in March 2011.

    Anthem negotiated reference prices for lab tests on a regional basis. Employees used a digital platform to view reference prices and the cost of individual laboratories' tests. If employees paid more than the reference price, they were responsible for the difference. Those who paid less were only responsible for paying the cost up to their usual deductible.

    Researchers then compared 2010-2013 claims data on the Safeway employees and 180,000 beneficiaries also insured by Anthem who were not subject to reference pricing. That represented a total of more than 2 million claims between the two groups.

    According to the study, implementing reference pricing was associated with a 31.9 percent reduction in the average price paid per test by the third year of the program. Over three years, total spending on lab tests declined by $2.57 million, and out-of-pocket costs by patients declined by $1.05 million. Spending by Safeway also declined $1.7 million.

    Experts note challenges with reference pricing

    Lead author James Robinson of the University of California, Berkeley, told Reuters that "reference pricing can't be used across all types of health care." For instance, he said certain types of hospital care and other unplanned medical expenses don't lend themselves to reference pricing.

    Robinson added that encouraging patients to shop around for health care, when possible, could be a valuable tool to help control costs.

    Experts told Reuters that there are challenges associated with reference pricing, such as making sure beneficiaries have access to accurate pricing information and understand how the program works. Paul Ginsburg of the Brookings Institution said, "The biggest problem is the lack of awareness that there's a reference price in effect" (Doyle, Reuters, 7/26; Dangi-Garimella, AJMC.com, 7/27; Robinson et al., JAMA Internal Medicine study, 7/25).

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