Another Hit On Price Transparency

HSAJAMA, the Journal of the American Medical Association, has published a research article challenging the doctrine that price transparency leads to lower health costs. Sunita Desai, et al., found:

Two large employers represented in multiple market areas across the United States offered an online health care price transparency tool to their employees. One introduced it on April 1, 2011, and the other on January 1, 2012. The tool provided users information about what they would pay out of pocket for services from different physicians, hospitals, or other clinical sites.

Mean outpatient spending among employees offered the tool was $2021 in the year before the tool was introduced and $2233 in the year after. In comparison, among controls, mean outpatient spending changed from $1985 to $2138. After adjusting for demographic and health characteristics, being offered the tool was associated with a mean $59 (95% CI, $25-$93) increase in outpatient spending.

Ouch! Let me make a couple of points. First, higher out-of-pocket spending might not be associated with higher health spending overall. If the price-transparency tools give patients confidence they understand their potential financial liability when going to doctors, that might encourage them to go rather than wait. If that increases timeliness of care, total health costs might go down while out-of-pocket costs go up. This is supported by previous research.

However, that is not addressed by the new research, so I do not want to plant my flag on that hill. Besides, I am not a fan of price transparency, as currently discussed in health policy. The prices that are made transparent are still dictated by insurers and providers. They are not formed where the marginal consumer transacts with the marginal supplier, which is fundamental to efficient pricing.

Perhaps this is better explained through metaphor. Suppose the government had rigged a home-ownership system whereby your house was a non-taxable benefit if you lived in a home chosen by your employer. If you chose your own home, your rent or mortgage would be paid with after-tax dollars. Further, suppose everything in the home, from light-bulbs to kitchen appliances, was also non-taxable if their costs were run through the same system at little direct cost to the occupant.

That is basically the way U.S. health care evolved from shortly after World War II to 2005. Then, Americans got the chance to open Health Savings Accounts, which allowed them to spend directly on health care with tax-free dollars. The result was high-deductible accounts and a heightened desire by patients to understand their costs. Ergo, the push for price transparency.

Suppose the alternative housing market evolved the same way: Occupants would now have to pay for their light-bulbs directly. However, they would still not know how much a light-bulb would cost until they went to a price-transparency tool offered by their employer which limited price information to in-network lighting stores. And they still would not know how much they owed until the lighting store submitted a claim to the customer’s employer’s housing plan.

That would hardly be considered consumer-driven, but that is pretty much all we’ve achieved in consumer-driven health care. No wonder it might not be having the effect it should be.


Comments (16)

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  1. Wanda Jones says:

    John–This is an important topic–thank you for addressing it. This is a prime example of how non-healthcare economists insist on applying who they know of retail economics to the healthcare system. They don’t seem to get it that healthcare is largely a wholesale business, with health plans buying/bargaining on behalf of thousands of m,embers. Unless prices are going to be compared along lines that actually represent choices of the patient in his/her service area, the comparison won’t have much impact, anyway.

    You who do have a focus on healthcare would do the field a lot of good to unlearn those guys from their over-educated ignorance. Too many policy-makers pick up on these nice-sounding phrases, such as “transparency” but do not have the background to question what that actually means.

    But I, too, hate the pricing culture. Recently I received a hospital bill that made me choke. The billed charges were $93,000 while the net payments to the hospital were in the $30,000 range–still too much!.

    BTW: An organization in SF has just announced the creation of innovation lab called “Superpublic” intended to nurture various collaborative projects to improve civic life in SF and the area. It’s in the SF Chronicle today, May 10.
    By Carolyn Said. It says that it includes health, but no one in the team seems to have a health background. They received a grant from the Feds, and are partnering with Microsoft.

    It’s beautiful in California–Come on out.

    Wanda Jones
    San Francisco

  2. Barry Carol says:

    It’s not clear how much out-of-pocket cost exposure varied from one provider to another, especially with respect to hospitals. If the difference is insufficient to get the member’s attention, it’s not likely to have much impact.

    If there are significant differences in out of pocket costs among providers, it may take members some time to learn that. Other things equal though, when it comes to procedures like surgeries and cancer treatment, patients are likely to be more sensitive to quality as measured by provider reputation likely outcomes whereas for commodity services like x-rays, ultrasound, other imaging, flu shots, and the like, price will get more weight.

    I also note that the CalPERS experiment with reference pricing for hip and knee replacements in Southern CA did, in fact, save significant money.

    • Plus, once you go to the hospital, you can kiss your deductible good-bye. So, as long as insurers pretend to control costs through deductibles, it will not work at hospitals. (Plus there is the issue of hospitals cleverly rebating costs up to the deductible to patients, in order to immunize their sensitivity to costs.)

  3. eric novack says:

    John- you are correct– the transparency described is forcing contracted parties to reveal their privately contracted rates.

    True price transparency would allow for real direct pay transparency and allow direct pay prices to be directed toward OOP expenses… as is in law in Arizona (ARS 32-3216, 36-347)

  4. Bob Hertz says:

    Let me share a personal story that may illustrate the limits of transparency pricing.

    Several years ago my cardiologist recommended a full blood profile every 90 days. I did the first blood draw in his office and was billed $240, well under the deductible so I had to pay it.

    The test was apparently identical to what Quest Diagnostics did for $39 down the street.

    When the second test was due, I toyed with the idea of going to Quest and bringing in the results. I decided not to do this, because (a) the protocols might not have been identical, and (b) I would be labeled a cranky patient.

    What I am implying is that many outpatient procedures are done at the place and by the personnel that one’s clinic or doctor chooses. In real life there may not be that many persons with a genuine opportunity to ‘shop around.”

    Incidentally, in my case I got no price relief until I turned age 65, at which time Medicare mandated a price of about $30 for the test my out of pocket was about $5.
    In this small instance, price controls achieved what markets could not.

    • Barry Carol says:

      Bob — I’ve heard elsewhere that if a patient tells his doctor that out of pocket cost is an issue of concern for him, the doctor will respond by helping him to get tests like imaging and blood work done in lower cost settings, prescribe a less expensive drug if there is one or even skip certain tests altogether if they are only marginally useful at best.

    • Well, I am not sure the market could not achieve the result. Rather you did not because you did not want to be labelled “cranky,” even though you could have asked the doctor to send the order to Quest. I’m not sure there is a policy that can address that.

      Most doctors are still clueless, but it is changing. If you show up in a suit and tie, the doctor thinks you can afford whatever. What I do is say, “There is a less expensive option. Is there a quality reason not to go that way? The risk is I will not adhere to the treatment because I cannot afford to pay. So, the less expensive option will give a better result.

    • PJohnson says:

      Cranky? So you shelled out an extra $200? That makes me cranky. Ever hear of CLIA? Quest is CLIA certified. Meaning their tests meet the same standards as EVERY other lab. Period.

      • PJohnson says:

        btw whenever I’ve had tests run elsewhere I received zero grief from my doctor.

  5. Bob Hertz says:

    This particular doctor (who is a great doctor) could not have made the concession to me about using an outside service. He is in a hospital-owned practice that watches revenues like a hawk.

    When my wife gave birth to our youngest in 1991, I did comment to a nurse about some detail that I thought was wasteful.
    My wife is convinced that the nurse handled her roughly because of that, and I heard about this for a long time.

    So I am probably a more deferential and meek patient than some. Thanks for the comments though.

    • Barry Carol says:

      I’m told that doctors who are employed by hospitals on a salary plus bonus basis face enormous pressure to keep as much care as possible within the hospital’s system no matter how much less expensive an alternative non-hospital owned provider might be. It seems that the only viable solution for cost conscious patients under those circumstances is to fine another doctor who is not employed by a hospital system.

  6. PJohnson says:

    1. An N of one is meaningless. ONE analysis settles that notion that price transparency doesn’t work? Shear nonsense. And clearly agenda driven.

    2. Price transparency for those without any incentive to capitalize on it is circular and the results are predictable. Try price transparency out on those with high deductibles which is becoming the norm or the uninsured – yup Obama you didn’t get ’em all. Just missed that goal by a mere 30 million.