1. 11 Lynn Quincy FUSA Health Action January 24, 2014 Tiered Provider Networks and Reference Pricing: Promise and Pitfalls

2. 2 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

4. 4 Narrow Networks  Only one in-network tier is offered, nominally consisting of providers that are the best value.

5. 5 Reference Pricing  To address variation in pricing, health plan identifies a cap (“reference price”) for a clinical service. Examples CalPERS: Hip Replacement Safeway: Colonoscopy Source: Wilson, Private Sector Approaches to Health Care Cost Containment: A Closer Look, Consumers Union and RWJF, November 2013. $15,000$30,000$110,000 $848$1,500$5,984

6. 6 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

7. 7 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.

8. Why choose $30,000 for allowed charges? $30,000 High volume, high quality facilities with geographic dispersion were charging less than $30,000 Source: University of California, Berkeley analysis, June 2013. Data for 2008 to 2010. Permission granted for use in this slide deck. 95% percentile $74,721 5% percentile $12,588

9. Allowed charges for the hip or knee replacement pre- and post- implementation of value based purchasing design program $30,000 Pre-Implementation Post-Implementation Source: University of California, Berkeley analysis, June 2013. Pre-implementation data for 2008 to 2010 and post- implementation data for 2011-2012.. Permission granted for use in this slide deck. 95% percentile Pre -- $74,721 Post -- $40,302

10. 10 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.

11. 11 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?

12. 12 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: Achieving Meaningful Alignment with Flexibility to Innovate,” Health Affairs 32, no. 8 (2013)

13. 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.

14. 14 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: Achieving Meaningful Alignment with Flexibility to Innovate,” Health Affairs 32, no. 8 (2013)

15. 15 Thank you! Please email with questions: lquincy “at” consumer.org Health cost resources available on: www.consumersunion.org/health- care-costs