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January 4, 2017

Frakt: Why price transparency doesn't always cut health spending

Daily Briefing

While the lack of price transparency in health care is commonly cited as a reason behind high health care spending, research suggests that efforts to improve price transparency do not always reduce patient costs, Austin Frakt reports for the New York Times' "The Upshot."

Studies show increased price transparency has not led to lower spending

According to Frakt, more than half of states have enacted legislation to create websites detailing health care prices or to require health plans and providers to disclose pricing information. In addition, some employers, organizations, and insurers provide employees and the public with pricing information.

However, research shows that these efforts have not necessarily lowered health care spending, according to Frakt.

For instance, a study published earlier this year in JAMA found that the Truven Treatment Cost Calculator, a website available to more than 21 million employees and their families detailing the costs of more than 300 services, did not help reduce outpatient spending. The study found that just 10 percent of individuals with access to the calculator used it during the first year, a figure that increased to just 20 percent in the second year.

Similarly, research has found that although many health plans offer pricing information to their members, just 2 percent of consumers view such data.

Further, a 2014 study found that only 1 percent of New Hampshire residents used the state's health price comparison website over the course of three years.

Availability of pricing might not mean consumers make price-based decisions

Dennis Scanlon, a health economist at Penn State University, said he is not surprised by the research. "Health care choices are different than most product and services," he said, adding, "Most decisions are driven by physician referrals, and insured patients usually face little variation in costs across options."

Further, consumers might be hesitant to shop for the best prices for health care services because they think the process is too difficult, Frakt reports.

In addition, giving consumers more information might not always improve their decision-making. According to Frakt, in many settings, providing consumers with more information can overwhelm them and result in poorer choices.

Moreover, some transparency tools could lead consumers to pick costlier providers out of a sometimes-mistaken belief that higher prices indicate higher quality. According to a study published earlier this year in the American Journal of Managed Care, about 50 percent of price transparency tools reviewed by researchers did not include quality information.

Also, some consumers might not bother to choose a lower-cost provider if their out-of-pocket costs will be the same as if they visited a higher-cost provider.

Could price transparency efforts be improved?

According to Frakt, efforts to reduce health care spending through price transparency could be more effective if they had a more significant effect on individuals' insurance costs.

For example, individuals enrolled in the California Public Employees' Retirement System must pay the cost difference if they choose to have a hip or knee replacement that exceeds a preset price. According to Frakt, the requirement is credited with cutting hip and knee replacement prices by 20 percent.

In addition, insurers could help patients locate less costly services by reaching out directly to consumers. For instance, some commercial insurers target patients who have been referred to low-value MRI providers. The program prompts such patients to voluntarily switch to a provider with lower prices and adequate convenience and quality. The program saves $220 per MRI, Frakt writes (Frakt, "The Upshot," New York Times, 12/19).

How to talk to patients about price

As the number of patients on high-deductible health plans rises, medical groups face increasing pressure to provide out of pocket prices to patients. However, providing accurate estimates is challenging.

Join us to hear key imperatives for competing on price, including how to find out if your market is highly price-sensitive, how service trumps accuracy when it comes to price, and how to attract patients on price without alienating hospital partners.


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