CA’s Emerging Health Care Market On Collision Course With Obamacare

By Barbara Hollingsworth | August 9, 2013 | 11:20 AM EDT

(AP photo)

( – Market-based health care reforms, including “domestic medical tourism,” currently being phased-in by major employers in California are already lowering health care costs for tens of thousands of employees and retirees without sacrificing quality of care.

But they are on a collision course with Obamacare, which goes into effect in January 2014, Dr. John Goodman, president and CEO of the National Center for Policy Analysis, told

Wal-Mart, the nation’s largest employer, is already offering its California employees what Goodman calls “domestic medical tourism.”

The giant retailer pays all costs, including travel expenses, for employees who agree to have major elective procedures such as heart surgery, joint replacement and organ transplants performed at seven out-of-state medical facilities the company previously selected as “Centers of Excellence,” including the Mayo Clinic.

Those who prefer to stay in California or go to a provider they select themselves are subject to out-of-pocket costs running as high as $5,000.

Other large corporations, including Lowe’s and PepsiCo, are also following Wal-Mart’s lead.

Safeway will soon be rolling out nationally what Goodman calls a “clear case of reference pricing” – establishing a standard fee for a particular service or procedure - by offering its employees 451 of the most common lab tests at a facility whose charges fall within the 60th percentile nationally. If they choose to patronize another lab that charges more, they pay the difference.

And starting in January, WellPoint, one of the largest health benefits companies in the U.S., will soon be expending reference pricing to 900 different medical procedures in California.

“California is the state to watch,” Goodman said. “For the first time, there will be competing health care markets.”

Referring to a study by Berkeley health economists James Robinson and Timothy Brown (See Calpers study.pdf) Goodman wrote in his blog that there is already “dramatic evidence that when patients are responsible for the marginal costs of their care (and therefore, providers have to compete on price) health care markets become competitive very quickly. Remember, the insurer is not bargaining with these out-of-network providers. The patients are.”

WellPoint’s pilot program for the 1.6 members of the California Public Employees’ Retirement System (Calpers) (See Calpers fact sheet.pdf) “lowered the price of members’ hip and knee replacement surgeries by 19 percent in one year while also demonstrating similar to better outcomes at lower-cost hospitals,” WellPoint said in a press release.

“It’s working so well in California that it almost certainly will be expanded by WellPoint to other states,” Goodman predicted.

The effects of reference pricing “are going to be huge,” he added. “Doctors’ fees for these kinds of procedures don’t vary all that much. But hospital charges are all over the map. Hospitals are now competing on price. They’ve never done that before. Why? Because of the insurance everybody has. They don’t compete on price if the patient isn’t paying the price.”

But there’s a looming problem ahead: Obamacare.

“The Affordable Care Act limits out-of-pocket costs,” Goodman pointed out, “so they’re going to need a ruling that reference pricing doesn’t violate Obamacare rules. They’re going to have to ask the Dept. of Health and Human Services to approve what they’re doing. Since these companies have gone ahead and done it anyway, they must think they’re going to get away with it.”

When asked Goodman whether they were likely to get such a ruling from the Obama administration, he replied: “It’s hard to say. Obamacare requires that out-of-pocket costs not exceed a certain amount and that [employers’ insurance] network is broad enough to offer care that is reasonably accessible.  If these companies require employees to go all the way to Cleveland [for care] or [else] exceed the out-of-pocket limits, it’s hard for me to predict what will happen.

“If Obamacare supporters are mainly interested in cost control, they will allow it. If they are more interested in catering to expectations that employees can go to any doctor or any hospital they want, then it’s less likely they will allow it.”