We have written extensively about the need for greater health care pricing transparency in the past. But now a few emerging examples illustrate what employers can do with this information once they have it. Even though these employers are large and have more leverage, the steps they are taking are important to long-term attempts to rein in health care costs. As more employers push providers to compete on price and signal that the wide-ranging disparities in health care pricing are unacceptable, this practice is much more likely to become the accepted way of doing business in the health care field.

Now to the details. As reported in in The New York Times recently, the California Public Employees’ Retirement System (CalPERS) reduced costs for certain health care interventions by up to 19% after partnering with Anthem Blue Cross to set reimbursement levels for certain procedures and tests, including MRIs and knee and hip replacements. CalPERS negotiates the pricing and compiles a list of those providers for employees to use when seeking care.

For example, CalPERS sets a reference price for hip or knee replacement at $30,000 and lines up providers willing to charge that amount for these procedures. The patient pays 10% coinsurance. However, if that individual chooses a provider that charges more than the CalPERS $30,000 reference price, the individual is responsible for paying the coinsurance amount plus any additional cost above the $30,000 reference price.

In a way, this approach gives employees no choice but to become better health care consumers. Yet, a key difference here is that these individuals have a clear benchmark to present to any provider they want to use. According to Suzanne Delbanco, the executive director of the Catalyst for Payment Reform, CalPERS saved $16 million in the first year of the program.

In testimony before the U.S. Senate finance committee, Delbanco states that more of this type of information and action is needed. “Transparency on health care prices increases the likelihood that consumers will choose health care providers that deliver effective and cost-efficient care. Price transparency can also be an important tool for health care providers. Recent studies suggest that price transparency can help providers evaluate and identify the most appropriate and affordable care for their patients. Furthermore, employers and health plans cannot implement some of the more promising benefit and network designs without it.”

She points to two examples of how employers can leverage data transparency—in reference pricing and value pricing. For example, reference pricing, which is what CalPERS uses to pay for knee and hip replacements, “establishes a standard price for a drug, procedure, service or bundle of services, and generally requires that health plan members pay any allowed charges beyond this amount,” says Delbanco. “Value pricing is when quality is also taken into consideration in addition to the standard price.”

Although saving money is certainly the primary driver of these approaches, employers are also sending a very strong message to health care providers. “Reference pricing signals to providers that their unwarranted price variation is no longer acceptable and engages consumers in making more value-oriented selections of providers,” says Delbanco. “Price transparency is at the core of these programs, enabling consumers to minimize their financial exposure.”