Setting Max Reimbursable Price For Care Can Cut Employers’ Health Expenses

Study shows how “reference pricing” incented employees to seek lower cost lab tests.

Comparison shopping for blood work someday may become as common as comparison shopping for back-to-school supplies.

A new study in JAMA Internal Medicine found that the use of “reference pricing” for the most common diagnostic laboratory tests can significantly reduce employers’ health care expenses and employees’ out-of-pocket costs for those tests.

Under a reference pricing model, a health plan or employer sets a maximum reimbursable amount for a particular medical service. Enrollees or employees who select a service at or below that amount pay the usual deductibles or co-payments for the covered service. Enrollees or employees who select a service above that amount pay the difference out of pocket.

Researchers from the University of California at Berkeley studied the financial impact of a reference pricing model adopted by Safeway, the national grocery store chain, in 2011. Safeway is self-insured, and the reference pricing program applied only to 285 common diagnostic laboratory tests for non-urgent medical needs. The most common test of that kind is a blood test, or basic metabolic panel, that measures a person’s blood sugar level, fluid balance and kidney functions.

According to the study, prices charged by diagnostic laboratories for such common tests varied widely in regions with concentrations of Safeway employees. For example, the price of a basic blood test ranged from $5.75 to $126.44.

Safeway set a reference price for each of the 285 diagnostic lab tests at the 60th percentile of the price range in each region. The company also gave employees access to an online platform that allowed them to look up prices charged for the tests by different laboratories in their areas. Employees who chose labs that charged the reference price or less incurred the usual deductibles and co-pays. Those who chose labs that charged more paid 100 percent of the difference, and the difference did not count toward their maximum limits on co-pays or deductibles.

The results were startling. The percentage of Safeway employees who used higher-priced labs dropped to 15.6 percent by 2013 from 45.6 percent in 2010—one year before the program went into effect. The average price per test dropped to $18.56 by 2013 from $27.72 in 2010. The researchers estimated that the company and its employees saved a collective $2.6 million on common lab tests from 2011 through 2013, with Safeway enjoying two-thirds of that amount.