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Reference Pricing in the Case of Screening Colonoscopies

October 19, 201612:00 pm1:30 pm

Rising healthcare costs and methods to contain these costs are of great interest and relevance for private and public agents. We examine one such strategy by analyzing the introduction of a reference-pricing program by a large health insurer. Reference pricing set a maximum reimbursable amount for screening colonoscopies if they were performed at a higher-cost facility, while no max was set for lower-cost facilities. We estimate the cost-savings associated with this program by focusing on the mediating mechanism put in place to achieve this program’s goals – promoting facility switching among patients (e.g. encouraging patients to choose lower-cost vs. higher-cost medical facilities). We find that are were large increases in the share of patients using lower cost facilities in response to reference pricing (about 17 percentage points). This analysis also reveals that for those patients induced to switch to lower cost-facilities, large reductions in mean total cost occur. Additionally, for this group, we find that the program substantially increases the probability of total costs being below the reference price threshold by approximately 65%.