detail about that, but basically there's benefit design. you really only want to implement reference pricing when it's elective and when you have a wide availability of providers. obviously this isn't going to work if you have one or two providers providing a service in san area that is not going to create the level of competition that you need. so, one, the procedures have to be elective and there's time to shop, and two, they're available from multiple providers. the next two are interrelated and i think are very on topic for conversations in this room, which is price and quality transparen transparency. you can't implement a reference price without giving consumers adequate information about the price of the procedure or the quality that they're receiving. most consumers still equate higher price with higher quality. and we know that not to be true. so you really need to arm consumers with plenty of price

information, so they know which providers are at or below the reference price and you need to arm them with the quality information, how often are these providers performing these procedures? what is their volume, what are their outcomes? it would be really unfair to implement a reference price if you aren't going to arm them with that kind of information. that goes into the next one, which is consumer education. i think there will be case study examples of how informing your employee population and educating consumers about the price and the quality and that -- and the correlation between the two will be really very important because you don't want consumers to get into a got you situation where they didn't know that someone was above the reference price and now they have a pretty extreme financial out of pocket liability. the last one is adequate

networks, it might not be an appropriate term here, because usually these are providers within an established network. so i use the term network loosely, but you want to be able to make sure you have plenty of providers who can offer these services, these procedures at the reference price. so consumers have the ability to choose and they don't feel overly limited. they have plenty of options, including the option to go to seek the care from providers over the reference price, but that's their choice. i won't go through the detail of all of this, but this is just a schematic of the range of reference pricing. you can have very basic reference pricing all the way to really more mature and sophisticated. and cpr also likes to talk about value pricing. reference pricing really refers to commodity type services like lab, imaging. and -- excuse me.

commodity services, that's for services where quality is thought not to vary. when you move into value pricing, you're adding a quality component and quality can vary. so as you get to the higher end of that spectrum, that's when quality gets inserted. and again, when you look at the safe way, when they applied reference pricing to their colon osk pis and they've now applied it to other procedures they were able to hold their per capita spending flat. and i think you'll hear about other savings that were achieved. as we go into what's next for reference pricing, you'll find that reference pricing is going to gain in popularity. only about 5% deployed the strategy in 2013, but we expect closer to 15% in 2014. want to go back to this issue of

price variation, because one of the things reference pricing does, why implement reference pricing? one of the main reasons you do it is to really bring a huge spotlight on the price variation and how it's unwarranted. and market power will drive the price and price is the leading cost of health care growth today. so reference pricing is a way for employers, purchase ermz, those that we work with, to say that that price variation is no longer tolerable. what's next for reference pricing? just a couple of things. price transparency and quality transparency. as reference pricing grows in popularity, so will the price and quality transparency tools. they will have to keep pace. the other thing is, the last bullet on here is that we really expect reference pricing to ultimately be paired with bundled payment. and this is important.

cpr partnered with hci 3, the health incentives improvement institute to write a paper on how if you pair referenced pricing with bundled payment you actually can move the market and educate consumers along the way. and it's actually a natural fit. bundled payment is a package price for lots of procedures within a particular service. let's say a hip or a knee replacement. you see multiple providers in multiple settings. a bundled payment is for all of that. if you set a reference price at that, you really are making it very clear, what's included in the reference price? the providers are very clear about what's in the bundled payment and we see that really as the next generation, once we get a little more experience with pure reference pricing and as providers get more experienced taking bundled payment and i think we'll see a pairing of bundled payment and reference pricing.

with that i'll turn it back to you ed. thank you very much. >> thank you very much, andrea. we are indeed going to hear from david who is the chief for the california public employees retirement system. you may know cal pers does a lot more than you might imagine from the title of its organization. it administers health and retirement benefits for more than 3,000 public schools and agencies and state employers, covering more than a million and a half in their retirement system, 1.3 million in health plans. david's here to tell us about cal pers reference pricing program and its impact on health care and costs, as andrea said that he might and promised that he might. thank you for coming. >> thanks, ed. i'm going to talk about cal

pers. it was on. i'm going to talk about cal pers reference based pricing program for a hip or knee replacements. as ed alluded to, cal bers provides helt benefits for 1.4 million members statewide. active and retired state employees. about a third of those end up in the preferred provider organization with anthem blue cross of california. and we spend about 7.5 billion annually in health benefits. i don't know about in washington, but in sacramento, that's a little bit of money. so the impetus for reference-based pricing was a variety of studies and they all had different purposes, but they helped to guide reference based pricing for hippedz and knee replacements. the first one looked at cost drivers for cal pers.

it turned out that osteoarthritis is one of the drivers and about a third of those costs come from hip or knee replacements. in addition, a deeper dive showed that from 2005, to 2008, there was a 40% increase in that cost for hip or knee replacements. one of the other studies we looked at, included looking at regional variations in cost. but we also saw not only those regional cost variation, but a lot of variation within region. i'll have some charts to show you that kind of variation towards the end. in addition, you know, we -- as andrea alluded to, a lot of the literature in the from house study suggested that the hospital cost had little to do with the quality of hip or knee wre placements. so as you go through the four

requirements for revs based pricing you have variation of costs, cost driver that volume might increase quality and then the last one is that the procedures could be scheduled. so in january 1st, 2011, cal pers and blue cross implemented the reference price program for hip and knee replacements. 46 facilities met the quaumt, costs and variations. in addition there was a volume gate. the volume gate included that they conducted ten hip, and ten knee -- total hip replacements in the previous 18 months. the value of $30,000 was chosen at the threshold, i think dr. bellman will talk about this

later today, but about 2/3 of the facilities charged less than that and included a large number of facilities that were well known and had a good geographic representation. when you look at the implementation, anthem did a lot of working with providers and orthopedists on outreach. a lot of times they act as the steerage of the patients. in addition a lot of outreach was done with the members themselves. not only was provided in the brochures and the coverage -- evidence of coverage kind of materials, but also whenever there was a precertification or notification to the patient, that included the reference based priced facilities and a description of the program, as well as if there was time between the precertification and actual surgery, anthem would call and advise them of the

program as well. in parts of northern california there's lots of travel needed and so there's not actual facilities there, included in this is a travel benefit to the member and their companion. and then the last one is that, one very important part of this is this is for the reference based pricing was only for routine procedures. any non-routine procedures would have a medical exemption. so i'm going to talk about the evaluation results of the program and these are mainly from a study that we did with uc berkeley, jamie robinson and tim brown, which was published in health affairs in august of this year. that i think is in your packet. so this is looking at utilization, this is the volume of hip or knee replacements. and the first three lines in this chart have to do with cal pers anthem enrollees, what's unique about their study, they

were able to get from anthem, the non-cal pers enrolee data as well. so we can look at where our members were going before and after the imp limitation of the program. the first line is the volume, the number of procedures and then the second line is looking at what percentage of your members went to the reference based pricing facilities. it was about 50% before the imp limitation of the program. and an increase to 63% after. non-cal pers members, 54% to their reference based pricing facilities. then dipped and came back. i have a additional representation of that next. the dark blue line being the cal pers reference base said pricing usage. you can see it went up dramatically after the implem t implementation of the program. and for the non-cal pers, it was fairly the same over time. so this is a chart for table of

the average price charged for hip or knee replacement surgery again for cal pers members and non-cal pers members. so the first line here is for average of all facilities. we can see that basically for all of the -- across all the groups, there was an increase from 2008 to 2010. average was about 35,000 in 2010 for the cal pers members. after the implementation of this program, it drops to about 25,000, in that range. the same for 2010 to 2011. what was surprising was this impact on the non-reference based pricing facilities, dropped dramatically down to 27, 28,000 after the implementation

of the program. so we can see that for the most part those charges stayed the same outside of cal pers. and again, i have a chart showing that. we see the implementation of the program, which is the dotted blue line, and you see this dramatic drop in prices. i have one more chart kind of getting at what andrea was talking about, with the variation in costs. i don't know if they show up as pink dots here or orange, but they were pink originally -- or orange originally, i think they're pink now. but the reference based pricing facilities, the blue dots are for the reference based pricing facilities who are participating in the program and the pink dots are the charges for the non-reference based pricing facilities. so what we see is that in 2008, 2009, 2010, a lot of variation with the pink dots cluftering

around 45,000 in 2008, going up in 2009 and about 50,000 little clusters there in 2010. then after the implementation of the program, the pink dots start cluftering around $30,000. so we deuced variation on the high end. the bottom end of the cost for the procedure stayed pretty much the same. so jumping into the conclusions, jimmy robins at uc berkeley concluded there was about $5.5 ploin savings in the first two years, a decrease of about 26% drop in cost for us as cal pers. also important to note is that the clinical quality and dr. bellman will talk about this in a little while, about the study they did, but the clinical qualities got better or stayed the same for cal pers, or for the reference based people who

went to the reference-based pricing facilities. so this turned out to be a hospital market story as much as a consumer enrolee story. reference based pricing induced enrollees to go to the reference based pricing facilities, but also changed the market as well. they concluded 14% of the savings were due to market share and 86% were due to the reduction in prices. so another important thing is that it's working in the market as well. we've expanded the program to 61 hospitals now. and so we've expanded reference pricing and we have these low volume, high cost for hip and knee replacements and we've moved them -- in 2012, moved to this high volume, low cost procedures looking at cataracts, colon osk piz and arthroskopy in

2012 and we're efltding how that's working. i would reiterate, those three procedures meet our check list, which was the cost variation within region, a focus on volume increase, may increase quality, they can be scheduled at a substantial cost to us. and we have a variety of initiatives to educate the consumer and get the message across. we're moving forward with that. >> thank you for hearing our story today. >> thank you very much, david. if we could reposition the clicker. we're going to hear next from theresa monty. she's the vice president of -- and this is very impressive. -- total corporate awards at kroger company, which most of you know is a cincinnati based corporation, the country's largest grocery store chain, it

is fourth largest retailer of any kind in the world. and theresa's in charge of kroger's health, welfare, retirement and pay plans. they're had some experience with reference base pricing as well. >> thank you. i just want to spent a little bit of time talking about what we're doing around reference based pricing. we call it target pricing because we thought our associates might relate to that aut little better. i wanted to start just by giving you information about the kroger company. so you can get a flavor for what we're all about and where we focus our efforts. we employ about 343,000 associates, all u.s.-based. we operate in about 35 states across the country. in the company health care plan, we have about 85,000 eligible

associates. the rest are represents under collective bargaining agreements and their benefit plans are provided through taft hartly and wel funds. so where we innovate are really within the company plan and that's where the target pricing initiative is today. so that's where i'll focus my time -- [ inaudible ] -- fine jewelry stores, usually people, i got a few eyebrows raised when i say jewelry stores, but wii one of the larger jewelry chains in the country as well. to talk a little bit about what our objectives are within our health care plan, we really focus on trying to keep it simple. for 350,000 people to try and understand what we're trying to accomplish with the health care benefits that we provide to them, we really focus on two objectives. the first one is to improve the

health of our associates and their family members. we truly believe if we can improve the health of our associates and their family members, not only will we be able to hold down costs for the company and costs for our associates, we also think that's a better place to be as an organization, more product ifr associations, happier work life balance. and secondly we're focused on reducing costs. the grocery business is not one of high margins. so we're focused on where we invest our dollars. we spent about $1.5 billion on health care for all of our associates in all of the benefit plans. so we're focused on health and reducing costs. and we're constantly looking at not just what health care costs, but how people access the system and where they're choosing to get care. where they're able to make decisions around quality and

cost as they're accessing health care when they need it. a couple of initiatives. i'll focus my discussion on our target pricing initiative. when we started that in 2012, we took two2012, we took two at the same time and focused on target pricing, which is our discussion today and we focused our services on high-tech imaging, so cat scans and mris and the like. we also at the same time, put in a very specific centers of excellence program to focus on knee and hip replacements and spinal fusion surgeries. so, that particular initiative, which i have just one or two slides at the end is is really focused on quality and quantity of care. target pricing is not so much about quality because we're going, we're assuming that the majority of the quality in a

high-tech imaging service is relativery the same. the difference is in the variation and cost. so our two different initiatives are addressing costs and then the quality of care. our target pricing program, we partnered with anthem. they were very instrumental in helping us design our target pricing in our centers of excellence program, but it really has three levels where associates and providers get involved in making the choice about where to access a high-tech imaging service. so, the first thing we put in place is that any high-tech imaging service has to get prior authorization or precertification. so, the provider or associate would call anthem blue cross and blue shield before a service is received and that is where it really starts.

so, on the slide here, you can see that aim or high-tech ima imaging, that is usually where a provider would get some education about our pricing program to help them understand that the plan has a certain threshold of how much we will pay for high-tech imaging services and help the provider then understand where in the market can think go or where they can send their patient or at or below the target price. so, thats the first level and you'll see in some of the results that's usually where most of the services will get redirected then. the second part, the shopper program. that's usually where a nurse from anthem will outreach to our associate or family member who's due to get an mri or ct scan and help them be more educated to help them know that the plan will pay and there are a lot of

choices and help them understand what providers they can go to if they want to pay at or below the price or they can go somewhere else. implementing that practice, so in 2012, started with five high-tech imaging services and ten an thechl states. you'll see here on the slides we added in 2013 and in 2013, we expanded to the states across the country, so we were able to capture more of our associates. the results that were seen, you can see here from the three

levels of the program, the clinical review. that's the first level where most of the services are getting redirected to a provider who is at or below the target price. we'll see the 2012 total year savings. that's just ten states for us. slightly bigger, but again, across the entire u.s. the middle, the shopper program, not as much savings, but we wouldn't expect as much there. we hope that most of the services would get redirected and they have. prior to getting the outreach call from a nurse to an associate and then actually implementing the threshold of the target pricing program. we have about 30% of our population that still chooses to go over the target price and we think that really comes down to education. so if you think about a lot of

people who aren't comfortable questioning cost or quality, questioning where their doctor sends them for a service. so we still have about 30% of the population who chooses to go to a facility that is at or below the target price. in ohio, ct scan of the abdomen, the costs range from about 260 to about $2600 depending on where you go. that education alone, both to the provider and our associate is critical. right now, it's all telephonic base, but we are making progress as you can see in our numbers and really getting people educated. early in '14, we'll be implementing a phone tool, cost of information online so they can start to make even better

decisions so, what we actually saw with unit cost, when the blue rose here are the 2012 results for the ten states where we had target pricing in 2012. and as you can see, we were actually able to reduce the university cost through target pricing by redirecting people to a cost efficient provider. by about 12% on both ct scans and mris. compared to all other states in 2012 where we didn't have target pricing implemented, costs actually increased for both ct scans and mris in 2012. when you break that down by the five services that we had in 2012, you can see each of the individual services in the ten states where we had target pricing in 2012. all of those went down. some significantly. so if you look at the abdomen ct right there in the middle of the

blue, went down by 32% unit price in the states where we had target pricing compared to some of the increases in other states for those same services. so, at the same time we implemented target pricing for medical services, the high-tech imaging, we also implemented it on several prescription drug categories. i wanted to give you some results from the prescription drug side as well. program has our own pbm, so we use kroger prescription plans to help us design a very similar initiative that we had in the medical world in the pharmacy world as well, so we took three categories of drugs in 2012 -- in 2013, we added the category and that really focuses on education at the point of sale, so when someone is in our store, they're at a pharmacy and talking to a pharmacy tech or

pharmacist, really being able to get that education because if you think about some to have -- we're just trying to see that with lipitor last year and not a high variation in effectiveness in that drug category. so, we've seen some really great results on the pharmacy side as well and here is just some statistics on what we saw in unit cost. in the prescription drug side. you can see significant cost reductions in 2012. utilization was not significantly -- individuals might forgo a medication. cost may end up with them if they choose a higher cost drug. we saw a little bit of that in

staten category. other than that, ppi and test strips, utilization went down a little bit and we're really watching that closely. we don't want people to stop taking medications when they need it, but we just want them to be better educated about the quality of the services they're receiving. just a brief moment. what we did is look at knee replacements, mus skeletal has been one of the highest in the plan, so we look at cost and quality of care that people were receiving and could we take a network and tier it so that we could pay just a little bit home run and inclu