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CalPERS program helps lower costs of member hip and knee replacement surgeries

BALTIMOREJune 23, 2013A pilot program for CalPERS, a large public California employer aimed at reducing costs for hip and knee replacements was able to influence price drops for these procedures at facilities not originally part of the program.

This conclusion, among others, will be presented at the AcademyHealth Annual Research Meeting from 11 a.m. to 12:30 p.m. on June 23 in Baltimore. Presenter Winnie Li, senior research analyst for HealthCore Inc., the outcomes research company for WellPoint, Inc. will make a podium presentation on the findings of the reference-based purchasing design program implemented for knee and hip replacement surgeries in 2011 for CalPERS members of a WellPoint affiliated health plan.

In May, the Centers for Medicaid and Medicare Services released a database of 2011 hospital charges for Medicare services showing a wide disparity in charges for some of the same services by hospitals in the same areas. California hospital charges for total knee replacement and total hip replacement surgeries ranged from $15,000 to $110,000 without evidence of difference in outcome or quality, according to an analysis conducted by WellPoint's affiliated health plan in California in 2009.

"We were pleased to see that the program led to better quality for some measures and increased use of facilities that charge less," said Ann Boynton, deputy executive officer for Benefit Programs Policy and Planning for the California Public Employees' Retirement System, which has 356,543 PPO members in California served by WellPoint's affiliated health plan. "The outcomes of this program further support what we know to be true, that higher cost does not mean better quality. Current spending levels are not sustainable and we must continue to find ways to provide quality services at lower costs now and into the future."

As part of the intervention program, members of the California Public Employees' Retirement System were given a list of designated facilities that met quality requirements and charged less than $30,000 for each knee and hip replacement surgery.

To qualify for the list, hospitals had to have already contracted with the network of WellPoint's California affiliated health plan, which manages a robust credentialing process. Participation includes requiring all participating hospitals maintain accreditation by at least one of several nationally renowned accreditation organizations. In addition, hospitals had to perform enough procedures to ensure results could represent credible measurement that positively demonstrated the hospital's skill in the surgeries.

Members were able to either choose from 46 facilities on the list that would result in them paying little to no out-of-pocket costs beyond deductible or pay the difference if they chose to use another facility that charges more than $30,000.

The result was that CalPERS health plan costs dropped significantly by 19 percent from $35,408 to $28,695 largely made up of lower prices on procedures from those who went to non-designated facilities. Out-of-pocket costs did not increase. CalPERS members also used designated facilities 21 percent more than they did in the previous year.

"We were not surprised to find that the program caused overall reductions in cost for CalPERS members," said Li. "However, it was amazing to see how costs fell for CalPERS members among the facilities that were not part of the original designation list. This demonstrates that a program used by a group with considerable buying power can influence costs at facilities not originally part of the intervention."

Outcomes for the CalPERS group were slightly better in some areas and equivalent in others for those using designated facilities. The study compared post-surgery infection, complications and hospital readmission rates. When comparing plan members to non-members, CalPERS members had significantly lower 30-day infection rates and lower 30-day complication rates.

The study compared CalPERS PPO members to other PPO members of WellPoint's affiliated health plan. The analysis used administrative medical claims for patients who had elective, non-emergency total knee replacement or total hip replacement surgeries from Jan. 1, 2010 and Dec. 31, 2011.


Contact: Lori McLaughlin

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