Reference Pricing The Home Depot, Inc. - Catalyst For Payment Reform
TOOLS &SUPPORTReference PricingThe Home Depot, Inc.The price of health care services and procedures can varysignificantly in a given market and have no correlation toquality. Learn about the benefit design The Home Depot,Inc. explored to address price variation and the valuablelessons the company learned from its population’sresponse.With support from
Case StudyReference PricingThe Home Depot, Inc. is the largest homeimprovement retailer in the world. Founded in 1978and headquartered in Atlanta, Georgia, it operates2,289 stores and has more than 400,000 associatesin the U.S., Puerto Rico, Guam, and U.S. VirginIslands. The Home Depot’s U.S. medical benefitsplans are available to all full-time (exempt and nonexempt) employees. Approximately 118,000associates are enrolled in the medical plan. Onaverage, associates are 46 years of age; 54% aremen and 46% are women.Catalyst for Payment Reform interviewed membersof The Home Depot benefits team about thereference pricing program they explored as a meansto reduce unnecessary health care spending andprovide higher-value health care for their associates.Spotlight on CompanyCultureThe Home Depot has a strong culture,rooted in servant leadership and corevalues, including: Customer serviceDoing the right thingEntrepreneurial spiritShareholder valueThese values drive the company’scommitment to providing valuablehealth care for its associates, who canin turn, provide top tier customerservice.The Problem & BackgroundA challenging market environmentThe Home Depot strives to manage health care trend year-over-year at or below its expectedsales growth by implementing cost-reducing strategies that preserve its company culture. Inalignment with its goals, The Home Depot wanted a benefits initiative in 2012 that sought toreduce unnecessary spend without shifting that spend to their associates.As part of The Home Depot’s strategic planning process, its third-party administrator (“carrier”)analyzed data to determine which strategies had the potential to help the company achieve thisgoal. The carrier revealed that the company could cut a significant amount of wasteful spendingby reducing the unnecessary variation in the prices it was paying for certain health care services,as the higher prices had no correlation to higher quality. Many employers and other health carepurchasers find they pay certain providers significantly more than others for non-emergentprocedures, such as a knee replacement, even though the quality is the same or worse than amore affordable alternative provider within the same region.For distribution, contact info@catalyze.orgAvailable for download at www.catalyze.org2
To combat this wasteful spending, the carrier suggested its reference pricing program.Reference pricing is designed to address the significant variation in prices by establishing astandard price for a drug, service, or a bundle of services and requiring plan members to payany allowable charges above this price.How is a reference price set? Typically, the carrier orhealth care purchaser examines the range of pricesfor a certain service or procedure available in themarket to determine a reasonable price, or a“reference price.” One of the considerations in settingthat price is whether there will be a sufficient numberof high-quality providers at or below the referenceprice, ensuring adequate access to care. The carrierthen arms its members with price and qualityinformation to help them choose providers. Ifmembers select a provider charging at or below thereference price, the procedure will be covered undertheir regular cost-sharing arrangement. If membersselect providers who charge more than the referenceprice, they must also pay the difference out-ofpocket.How does reference pricingwork?Reference pricing is generally usedto root out waste for services thatvary significantly in price fromprovider to provider.The carrier sets the reference priceat a level that allows plan membersto continue to have adequate accessto providers in the market.Quality can be factored intoproviders’ qualifications, althoughreference pricing is most commonlyapplied to certain high-costcommodity procedures, wherequality may be more consistentamong facilities and providers.The program is designed to motivate members tovisit providers that offer a high-quality service at a reasonable price, while preserving their abilityto choose. It also creates competitive pressure for higher-priced providers to reduce prices tobe more in line with the market.The Home Depot was intrigued by the potential to reduce the variation in the amount it waspaying for certain services as well as to reduce costs for the company and its associates whilealigning with its core values. They agreed to forge ahead with a customized version of thecarrier’s reference pricing program.Designing the StrategySelecting the right servicesThe Home Depot’s carrier offered reference pricing for multiple services, including CT scans,MRIs, carpel tunnel release and cataract surgery. When selecting the service for the referencepricing program, The Home Depot had several considerations. The service needed to be nonemergent so that associates would have sufficient time to evaluate the price of providers,schedule an appointment, and then receive care. The service also needed to be a significantcost driver for the company. The Home Depot selected colonoscopies and endoscopies, whichboth met all of these criteria.For distribution, contact info@catalyze.orgAvailable for download at www.catalyze.org3
Furthermore, the benefits team selected colonoscopies because the procedure is considered aprimary preventive service under the Affordable Care Act (ACA), which means it is not subject tocost-sharing. If an associate selected a provider charging above the reference price (i.e., therewere overages for the colonoscopy) the associate was responsible for the difference in price,but had no co-payments or co-insurance for the office visit. The associate would not incur anyout-of-pocket costs if the service was offered at or below the reference price. This was not thecase for endoscopies. Members experienced a 20% co-insurance because The Home Depotwanted to test whether the additional cost-sharing would create a financial incentive forassociates to choose the right provider. However, this program affected fewer membersbecause they utilized endoscopies less frequently.For all of these reasons the company felt hopeful that applying reference pricing to these twoprocedures would help reduce costs and allow it to remain true to its core values.Determining the reference priceIn 2013, the company implemented the reference pricingprogram in every market with a broad provider networkoffered by the carrier—more than 30 markets, includingAtlanta, Boston, Chicago, Dallas, New York, andPhiladelphia.The price is rightIn Atlanta, the reference price forcolonoscopies was set at 1,000.Seventy-five percent of providers—asizable portion—had prices at or belowthis amount.The next step was setting the reference price, whichvaried for each region. The carrier identified the cost ofcolonoscopies and endoscopies through its secureportal and defined a maximum allowable amount for both procedures.In each market, the carrier set the reference price to ensure that there were an adequatenumber of providers charging at or below the reference price and where it would not interferewith meeting access standards.A customized tool to get associates to the right providersFor this strategy to work, the company’s associates needed to understand that their providerselection could significantly impact how much they paid out-of-pocket for a colonoscopy orendoscopy. Associates would only be able to make the right choices if they could easily accessinformation on the prices and quality of available providers. Along with its reference pricingprograms, the carrier offers a secure member portal to help members understand whichprocedures their employers’ program includes, along with the reference price in their home zipcode. The portal then directs members to a tool where they can find facilities that perform theservice at or below the reference price.However, The Home Depot knew its associates primarily had first-dollar preferred providerorganization (PPO) coverage, meaning they historically did not need to shop for providers byprice. Rather, they selected specialists based on where their doctors referred them. The HomeDepot wanted to make it as easy as possible for its associates to select a provider who met theFor distribution, contact info@catalyze.orgAvailable for download at www.catalyze.org4
reference price, so the company posted the list of available providers directly on its website,Live The Orange Life. One challenge to this approach, however, was that the website could notreflect any real-time changes to provider prices.Rolling out the modelEmployee communications & engagementDue to the learning curve required for associates to become more active consumers, The HomeDepot developed a multi-pronged communications strategy. The Home Depot utilized thecarrier’s standard communication materials and focused on the frequency of communications aswell as the medium. In addition to highlighting the program during annual open enrollment, thebenefits team provided program information on associates’ medical cards, which included anumber to call when scheduling a colonoscopy or endoscopy.The carrier provided email reminders for the benefits team to use quarterly to keep the programtop of mind for associates. In addition, associates had access to the carrier’s video that explainedthe program in detail.A team effortAs with any new initiative, the benefits team devoted substantial time and resources toimplementing the program. They conducted thorough research to understand the program’spotential impact on their associates. They developed a comprehensive communications andoutreach plan to educate associates about the program both at launch and on an ongoing basis.Working together, the team felt successful, experiencing little noise, frustration or complaintsabout the program from associates.ResultsEven with the comprehensive communications plan, outreach services, and the list of providersthat met the reference price available on the website, some associates continued to receivecolonoscopies or endoscopies from providers charging over the reference price, whichprompted an additional out-of-pocket cost.The Home Depot concluded that most associates continued to follow the referrals theyreceived from their physicians. The enhanced member services and website tools were notenough to encourage associates to question their providers’ referrals. It was with this result thatthe benefits team determined that strategies to remove waste will require physicians to get onboard. In other words, engaging physicians to make informed, high-value referrals is an essentiallever to ensure that associates receive higher-value care.For distribution, contact info@catalyze.orgAvailable for download at www.catalyze.org5
What’s Next?Based on its experience with the reference price program, The Home Depot has determinedthat there are barriers to asking associates to be expert consumers of health care in anecosystem where prescribing physicians have significant influence in directing care. Ultimately,a better strategy for The Home Depot population, primarily enrolled in PPO plans, is to focus onguiding associates to high-value physicians who ensure their patients receive appropriate careand keep an eye on quality and affordability.In the last several years, The Home Depot has focused on building high-value providernetworks. The goal is to create a comprehensive care ecosystem that provides associates withaccess to affordable, high-quality providers without requiring them to shop. The companycontinues to prioritize its core values in program design.In 2017, The Home Depot began working with Imagine Health to offer a high-value network totheir associates. The network is comprised of the highest quality providers in the market. Inexchange for being included in the narrower network, these providers are willing to make unitprice concessions, which leads to cost savings for the company and its associates.For the Imagine Health plan options, The Home Depot developed a plan design that offersassociates unlimited primary care visits and other generous benefits, such as a lower out-ofpocket maximum and lower co-payments, compared to their other health insurance choices. Inaddition, The Home Depot associates that select the high-value network plan do not have copayments when they receive inpatient services, only co-insurance.Thus far, The Home Depot has offered Imagine Health’s high-value networks to associates intwo markets and seventy-five percent of the covered population selected these plans duringopen enrollment. Although the program is in the nascent stage, the benefits team is finding thatmost associates are happy with it.For distribution, contact info@catalyze.orgAvailable for download at www.catalyze.org6
The Home Depot strives to manage health care trend year-over-year at or below its expected sales growth by implementing cost-reducing strategies that preserve its company culture. In alignment with its goals, The Home Depot wanted a benefits initiative in 2012 that sought to reduce unnecessary spend without shifting that spend to their associates.
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Dr. Sunita Bharatwal** Dr. Pawan Garga*** Abstract Customer satisfaction is derived from thè functionalities and values, a product or Service can provide. The current study aims to segregate thè dimensions of ordine Service quality and gather insights on its impact on web shopping. The trends of purchases have
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