Price transparency has been touted as a way to reduce health care spending, but there’s one big problem: it has rarely worked. That may have more to do with how it has been implemented in the past rather than a fundamental problem with the concept itself.
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The idea behind price transparency is that informed consumers can price shop for medical services that have widely varying prices, like elective surgeries or magnetic resonance imaging (MRI). The concept is very popular, both in the United States and abroad. Most recently, President Trump signed an executive order aimed at requiring hospitals to disclose what patients will “actually pay” for care. But evidence shows that transparency does little by itself. Some argue health care prices may actually go up in some cases. Giving consumers information alone does not mean they will actively use it to shop around for lower costs.
Consumers Rarely Use Health Care Price Tools
A study published in the American Journal of Managed Care surveyed more than 140 million health plan members across 31 different commercial plans who had access to price transparency tools. Only 2% used them. Many members did not know the tools existed at all.
Sunita Desai, PhD, and colleagues at Harvard Medical School in Boston set out to measure the association between employer-provided price information and outpatient spending. In a 2016 article in JAMA, they reported that they found that employees rarely used the information, nor was it associated with lower spending. Aetna offers a website with real-time, personalized price estimates that is used by only 3.5% of its members. Perhaps these tools can be effective in reducing health care spending, but evidence shows that low overall use is a significant bottleneck to achieving that goal.
The lack of use may have to do with the fact that health care is different from other consumer goods and services. Researchers from the Harvard T.H. Chan School of Public Health in Boston illuminated some reasons consumers may not seek or use price information for health care the way they do for other products.
First, although cost sharing exposes insured patients to some health care costs, most insured individuals are insulated from the vast majority of these costs. Put simply, in health care, people, by and large, are not shopping with their own money. If consumers don’t benefit from the savings associated with price shopping or bear some burden for choosing higher cost providers, they have no incentive to shop.
Second, patients may simply default to following their physician’s advice on where to obtain care.
Third, quality is crucial in health care—where bad quality could cause serious harm. Although quality is important for other products, bad quality is typically just an inconvenience. But judging the quality of care is much harder than sizing up other products or services. Because of this, patients may use price as a proxy, assuming higher prices mean better quality. Consequently, even if patients have price information, they may not choose the lowest price available.
More Cost Sharing Doesn’t Seem to Work
Proposals to promote utilization of price tools and subsequent spending reductions have largely centered on increasing cost sharing. For example, price transparency has been paired with high-deductible health plans. The hope is that sharing some of the cost with members would incentivize use of price information to lower out-of-pocket costs in the deductible range of their plans.
It hasn’t seemed to work. In a subgroup analysis in their 2016 article in JAMA, Desai and colleagues found no decrease in health spending related to transparency tool usage among members with high deductibles. Another study found that consumers did not price shop for cheaper care when switched into a high-deductible plan. One study, by researchers at the University of Southern California, Los Angeles, and other institutions did find modest savings from high-deductible health plans as a result of using lower-cost physicians and receiving cheaper laboratory tests.
Although high-deductible health plans provide a financial incentive, it may be too weak to promote the desired shopping effect. Many people ultimately spend through their deductibles, so they have little incentive to save on specific services.
Other Approaches Seem More Promising
Deductibles aren’t the only source of financial incentives. Other types of incentives seem to work better.
For example, a recent article in the American Journal of Health Economics by Christopher Whaley, PhD, and colleagues at the University of California, Berkeley, examined pairing price transparency with reference pricing for Safeway employees. Here’s how it works: payers set a maximum reimbursement threshold for shoppable health care services, which is the reference price. Patients who use providers with prices above the reference price pay the difference out of pocket. Under properly designed programs, members are given price transparency tools that help them find lower-priced care.
The study watched for employee health care behavior changes over 2 years, looking at laboratory and imaging test prices. After the first year, during which only price transparency tools were offered, the authors confirmed the findings of previous studies: health plan members rarely shopped.
But when the reference pricing information was added in the second year things changed. Shopping picked up and prices decreased. Specifically, laboratory test prices dropped 27% and imaging test prices decreased 13%. The authors concluded that price tools will capture the attention of consumers only if the consumers have strong financial incentives to shop in the first place.
Another option is pairing price transparency with rewards programs. Like reference pricing, rewards programs set maximum reimbursement thresholds. Then, members who use services at prices below their thresholds receive rebates. Another recent study by Whaley and colleagues in Health Affairs evaluated a 2017 rewards program with more than 250 000 eligible shoppers. Shoppers who sought out lower-cost care using price transparency tools were given checks ranging from $25 to $500, depending on how much the cost of services fell below the threshold.
This incentive drove more people to use the pricing tool. For all services, 8.2% of the intervention group used the price shopping tool compared with 1.4% in the comparison group. However, usage of the tool varied from service to service. For example, 18.9% of people in the intervention group used the price shopping tool for MRIs compared with 2.6% in the comparison group, whereas 3.3% of those in the intervention group vs 0.9% in the comparison group used it for ultrasound examinations. The authors found a modest 2.1% reduction over all in prices paid for shoppable services in the intervention group relative to the comparison group, with the greatest effect seen in imaging services, which showed a 4.7% and 2.5% decrease in prices paid for MRIs and ultrasounds, respectively. There was no significant price change observed in other types of imaging like CT scans or more invasive procedures like endoscopies.
Both reference pricing and rewards programs increase engagement with price transparency tools. But reference pricing seems much more effective in lowering prices. This makes some sense. Evidence from behavioral economics shows that financial losses are more salient than gains. Thus, a reward for using lower priced services is less motivating than having to spend more up front.
Evidence has been building against price transparency. But the idea may be effective in pushing health care prices downward if paired with the right incentives.
Research for this piece was supported by the Laura and John Arnold Foundation.