Impact of Reference Pricing on Cost and Quality in Total Joint Arthroplasty

Background: Prices for total joint arthroplasty vary widely. Insurers have experimented with reference-based benefit designs (reference pricing) to control costs by setting a contribution limit that covers lower-priced facilities but necessitates higher out-of-pocket payments at higher-priced facilities. The purpose of this study was to evaluate the impact of reference pricing on the cost and quality of care for total joint arthroplasty.

Methods: The California Public Employees’ Retirement System (CalPERS) implemented reference pricing for total joint arthroplasty in January 2011. We obtained data on 2,023 CalPERS patients who underwent total joint arthroplasty from January 2009 to December 2013 and comparison group data on 8,024 non-CalPERS patients from the same time period. Trends in 9 cost and quality-related metrics were compared between the CalPERS group and the comparison group: patient choice of a lower-priced hospital, insurer payment, consumer payment, 90-day complication rate, 90-day readmission rate, annual surgical volume of the chosen hospital, length of stay, travel distance, and rate of discharge to home. The impact of reference pricing was estimated with difference-in-differences multivariable regressions, adjusting for covariates.

Results: An increase of 19 percentage points (95% confidence interval [CI], 13.0 to 25.6 percentage points; p < 0.01) in the selection of lower-priced hospitals was attributable to reference pricing, with a concurrent mean savings for the insurer of $5,067 (95% CI, $2,315 to $7,819; p < 0.01) and an increase in the mean patient out-of-pocket payment of $1,991 (95% CI, $1,053 to $2,929; p < 0.01). No significant change in any quality indicator was attributable to reference pricing, with the exception of an 8% reduction (95% CI, 3.3% to 12.7% reduction; p < 0.01) in the length of stay for hip replacement.

Conclusions: Reference pricing motivates patients to choose lower-priced hospitals for total joint arthroplasty, with no measurable adverse impact on quality. Reference pricing represents a viable strategy in the shift toward value-based care.