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What Drives Water Utility Selection of Pricing Methods? Evidence from California

ABSTRACT: Water pricing is a demand management strategy to address the looming challenge of greater water scarcity in arid regions. Much of the literature on residential water rates focuses on evaluating the impact of pricing on household conservation. A separate, but rarely addressed question is what motivates a water utility to select a particular rate structure and the timing of doing so. We assess utilities’ decisions to adopt pro-conservation rate structures, such as increasing block rates and water budget rates. We develop a conceptual model of utility decision-making regarding the transition to pro-conservation rates and apply it to California. We examine the relationship between rate adoption and characteristics of utilities and customers using logistic regression and a balanced panel dataset of 323 California water systems from 2006-2015. We find a notable shift towards pro-conservation rates, which 71% of California utilities had by 2015, compared to 44% in 2006. Capacity factors associated with adoption include size of service population and customer income level, while motivating factors include peer adoption, greater customer engagement, and special district governance. Overall, this study provides insight into barriers to pro-conservation pricing, which can inform policies to enable transitions and advance conservation goals.

Supplementary Information

The online version contains supplementary material available at 10.1007/s11269-021-03018-8.

SUBMITTER: Allaire M

PROVIDER: S-EPMC8566021 | biostudies-literature |

REPOSITORIES: biostudies-literature

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Project description:INTRODUCTION:California's Workers' Compensation System (CAWCS) Department of Industrial Relations questioned the adequacy of the current Medi-Cal fee-schedule pricing and requested analysis of alternatives that maximize price availability and maintain budget neutrality. OBJECTIVES:To compare CAWCS pharmacy-dispensed (PD) drug prices under alternative fee schedules, and identify combinations of alternative benchmarks that have prices available for the largest percentage of PD drugs and that best reach budget neutrality. METHODS:Claims transaction-level data (2011-2013) from CAWCS were used to estimate total annual PD pharmaceutical payments. Medi-Cal pricing data was from the Workman's Compensation Insurance System (WCIS). Average Wholesale Prices (AWP), Wholesale Acquisition Costs (WAC), Direct Prices (DP), Federal Upper Limit (FUL) prices, and National Average Drug Acquisition Costs (NADAC) were from Medi-Span. We matched National Drug Codes (NDCs), pricing dates, and drug quantity for comparisons. We report pharmacy-dispensed (PD) claims frequency, reimbursement matching rate, and paid costs by CAWCS as the reference price against all alternative price benchmarks. RESULTS:Of 12,529,977 CAWCS claims for pharmaceutical products 11.6% (1,462,814) were for PD drugs. Prescription drug cost for CAWCS was over $152M; $63.9M, $47.9M, and $40.6M in 2011-2013. Ninety seven percent of these CAWCS PD claims had a Medi-Cal price. Alternative mechanisms provided a price for fewer claims; NADAC 94.23%, AWP 90.94%, FUL 73.11%, WAC 66.98%, and DP 14.33%. Among CAWCS drugs with no Medi-Cal price in PD claims, AWP, WAC, NADAC, DP, and FUL provided prices for 96.7%, 63.14%, 24.82%, 20.83%, and 15.08% of claims. Overall CAWCS paid 100.52% of Medi-Cal, 60% of AWP, 97% of WAC, 309.53% of FUL, 103.83% of DP, and 136.27% of NADAC. CONCLUSIONS:CAWCS current Medi-Cal fee-schedule price list for PD drugs is more complete than all alternative fee-schedules. However, all reimbursement approaches would require combinations of pricing benchmarks. We suggest keeping primary reimbursement at 100% of Medi-Cal and for drugs without a primary Medi-Cal price calculating the maximum fee as 60% of AWP and then 97% of WAC. Alternatively, we suggest using NADAC as a primary fee-schedule followed by either 60% AWP and 97% WAC or AWP-40% for drugs with no NADAC price. Fee-schedules may not offer the best price and a formulary approach may provide more flexibility.

Dataset Information

What Drives Water Utility Selection of Pricing Methods? Evidence from California

Supplementary Information

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