title: Reference Pricing with Endogenous or Exogenous Payment Limits: Impacts on Insurer and Consumer Spending.
abstract: Reference pricing (RP) theories predict different outcomes when reference prices are fixed (exogenous) versus being a function of market prices (MPs) (endogenous). Exogenous RP results in MPs at both high-price and low-price firms converging towards the reference price from above and below, respectively. Endogenous RP results in MPs at both high-price and low-price firms decreasing, with low-price firms acting strategically to decrease the reference price in order to gain market share. We extend these models to a hospital context focusing on insurer and consumer payments. Under exogenous RP, insurer and consumer payments to low-price hospitals increase, and insurer payments to high-price hospitals decrease, but predictions regarding consumer payments are ambiguous for high-price hospitals. Under endogenous RP, insurer payments to high-price and low-price hospitals decrease, and consumer payments to low-price hospitals decrease, but predictions regarding consumer payments are ambiguous for high-price hospitals. We test these predictions with difference-in-differences specifications using 2008-2013 data on patients undergoing joint replacement. For 2 years following RP implementation, insurer payments to high-price and low-price hospitals moved downward, consistent with endogenous RP. However, when the reference price was not reset to account for changes in MPs, insurer payments to low-price hospitals reverted to pre-implementation levels, consistent with exogenous RP. Copyright © 2015 John Wiley & Sons, Ltd.
authors.affiliation: School of Public Health, University of California, Berkeley, CA, USA.
authors.forename: Timothy T
authors.initials: TT
authors.lastname: Brown
authors.affiliation: School of Public Health, University of California, Berkeley, CA, USA.
authors.forename: James C
authors.initials: JC
authors.lastname: Robinson
mesh_terms: D019644:Arthroplasty, Replacement, Hip; D019645:Arthroplasty, Replacement, Knee; D003132:Commerce; D003365:Costs and Cost Analysis / Q000379:methods*; D005102:Health Expenditures; D006801:Humans; D007345:Insurance Claim Review; D019458:Insurance Coverage; D018803:Models, Economic
keywords: consumer cost sharing; difference in differences; hip replacement; insurer expenditures; knee replacement; reference pricing