Consumers in Charge

PricewaterhouseCoopers has issued a report on a survey conducted by its “Strategy&” subsidiary (formerly Booz and Company). The survey of over 2,300 U.S. residents is a hearty endorsement of consumer empowerment, so much so that the report’s first paragraph states –

“There’s a new boss in U.S. healthcare: the survey of 2,339 U.S. residents by Strategy&. The research paints a clear picture of a population displeased with its overall healthcare experience — and with rising expectations for transparency, value, and customer service, as well as a willingness to seek healthcare services from less traditional sources. The healthcare market as we know it is being upended, and the consumer is in the driver’s seat.”

The report has a lot of lessons for the next phase of health reform efforts. In particular –

People like shopping on Exchanges. They like private exchanges better than public ones – 73% said they are likely to stay with the coverage they selected on a private exchange, vs. 57% who said the same about a public exchange. Of course, staying with your current coverage may not be a good thing if the cost changes substantially, as seem to be happening on the public exchanges. While the bureaucrats are encouraging people to look around for the best deal each year, they seem to ignore the real problems with doing so – changing insurance plans every year is extremely disruptive to families and continuity of care. Under Obamacare, it means learning all over again what benefits are covered, what providers are included, what drugs are covered, how to file a claim, how to appeal a denial, how to locate customer service, and so on.

People are ready to try non-traditional sources of care. The report says –

“Consumers, particularly younger ones, increasingly expect healthcare to work the way other digital markets work, with user-friendly interfaces, clearly options designed to meet their needs. Their other buying experiences have made them more savvy and skeptical, and they want to know what they’re getting before they spend.”

Health care services are woefully behind in the transition to digital. While 80% of consumers said they would like digital services to help manage their care, only 23% said they currently have that.

The report also suggests that non-traditional providers such as retail firms like Target and tech firms like Google and Amazon have the potential to take “significant market share” as “consumers associate them with efficient, effective, and delightful customer experience.

Age cohorts make a big difference. Obviously younger people are more comfortable with a digital world than older people are, but the differences go well beyond that –

 “Half of those younger than 25 would go to a shiny new hospital for care as opposed to an older, drab one, even if the new one was scored lower in national rankings; only 16 percent of those older than 65 felt the same way. In attitudes toward telemedicine, the generational divide is just as wide: More than four in five respondents younger than 35 said they embraced care provided via virtual marketplaces, whereas 47 percent of senior citizens “hate” the idea.”

More important for Obamacare, younger people consider “price to be paramount in their decision-making..” while the elderly are “largely unmoved by price variations…” This suggests Congress made a very big error in limiting age differentials in premium pricing and getting the young to subsidize the elderly – the older people don’t care that much about price, but the younger ones care a whole lot.

Overall this report is just another rock on a growing mountain of evidence that Americans are no longer content to be passive recipients of whatever the health care establishment wants to do for (or to) them. They want to be in control of their health care as they are in every other aspect of their lives.

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Price Transparency Works

The Journal of the American Medical Association (JAMA) has just published a new study on the ability of price transparency to lower costs.

The study, by Christopher Whaley et. al., was very large, involving over 500,000 individuals in 253,000 households. They were covered by 18 large self-insured employers, which adopted the Castlight Health price transparency platform sometime between 2010 and 2013. The employers represented a wide range of industries and offered a variety of health benefit designs. Every state in the country was represented.

The population was split into two groups – those who searched the Castlight platform prior to getting services, and those who did not. Each searcher could get estimates of personalized out-of-pocket costs based in their own plan design. They could also get non-price information such as provider qualifications and patient satisfaction ratings. The services studied were limited to three frequent but elective categories – lab tests, advanced imaging (MRIs and CT scans), and clinician office visits. The two populations groups could be compared both before and after the Castlight platform became available to them.

The results were interesting.

Before either group had access to the price transparency platform, the study group (those who eventually became searchers) had higher costs than the control group in two categories – 4.11% higher for lab tests, 5.57% higher for imaging, but 0.26% lower for office visits.

After the search tool became available, the study group’s costs went down – 16.93% lower than the control group for lab tests, 14.97% lower for imaging, and 0.76% lower for office visits. These are for situations where the patient had cost sharing responsibilities. When there was no cost sharing, the results were 14.13% lower for labs, 13.63% lower for imaging, and 2.26% lower for office visits.

Looking at both the before and after comparisons, the savings were significant — in the 20% range for labs and imaging, but not as much for office visits.

The study authors did not look at other metrics, such as health outcomes or patient satisfaction. But they did test for selection. The two groups were nearly identical in age, gender, health condition and use of services. The control group had slightly higher household incomes than the study group ($75,233 vs. $73,149) and somewhat higher medical spending ($559 vs. $495) in the year prior to access to the search program.

These are not “set the world on fire” results but they are significant. They illustrate that, given the tools and the incentives, health care consumers will indeed shop around for value, which means not just price but also quality and convenience. Importantly, the search for value seems to continue even when the financial incentive is taken away. The authors write –

“We also demonstrated that payments for claims, even without cost sharing, were lower for those who searched than for those who did not. This result may be in part due to inertia because clinician choices when employees must pay a deductible might persist even after they have reached the deductible and have little or no cost sharing.”

In other words, economizing behaviors continue even after the cost sharing is ended. This helps answer one of the objections critics have made about Health Savings Accounts. They have stipulated that having a high deductible may lower spending, but once the deductible has been met, they say, people will go wild consuming care that is suddenly free to them. That sounds plausible, and even I have been puzzled that HSA programs seem to save money across the board, not just on the lower cost services. Apparently thrifty habits persist.

Now, of course, our friend Uwe Reinhardt weighs in with a one-page commentary in the same issue of JAMA. Uwe is losing his touch. He starts right out with –

“Citizens in most economically developed nations have health insurance coverage that results in only modest cost sharing at the time health care is used. Furthermore, physicians, hospitals, and other clinicians and entities that provide health care within most systems outside the United States are paid on common fee schedules uniformly applied to all clinicians, health care organizations, and insurers.”

Of course, according to OECD, the United States has one of the lowest rates of OOP payment in the industrialized world (see chart below).  And I am astonished to learn that Uwe is now a fan of fee-for-service payment. So am I. It will be nice to have an ally in academia. He goes on to complain of “cost shifting” by employers, but as an economist he surely knows there is no cost shifting, or more accurately all health care spending is already cost-shifted. Every penny the employer spends on health care is a penny taken out of wages. Employers concern themselves only with total compensation – the more they spend on paying for health services, the less they have to spend on take home pay.

OECD OOP cropped

But the most important error he makes is supposing that health care consumers need to have price transparency before they are allowed to control their own funds. That is exactly wrong. The reason we don’t have price transparency is because of third party payment. Consumers don’t know what things cost and don’t care because they are not paying the bill directly. The only way transparency will ever happen is when consumers demand it, and they won’t demand it until they control the money.

Meanwhile, the evidence is piling up that when people can control their own funds they do a very good job of using the money wisely – far better than any third party payer has done in the past fifty years.

Another Side of Atul Gawande

I’ve been pretty hard on Dr. Atul Gawande over the years.

During the Obamacare deliberations he wrote an article in the New Yorker about McAllen, Texas  that became mandatory reading in the White House. It purported to show that for some unexplained reason McAllen had much higher costs than other locations in the United States. This was evidence, the White House said, that physicians are greedy and need to be controlled by bureaucrats. It was a poorly researched article that relied solely on Medicare data and failed to account for unique conditions in that city. As it turned out, when you include non-elderly spending, McAllen isn’t particularly costly and the area has an extreme shortage of physicians, so people tend to go to the emergency room instead.

A few years later he wrote another article in the New Yorker about how marvelously efficient the Cheesecake factory is, and bemoaning that American hospitals can’t do likewise. I posted some comments about how mistaken the analogy is on the NCPA Blog.

So I was prepared for the worst when I sat down to read his latest, an excerpt from his new book published in Slate. It was about end-of-life care, and after Zeke Emanuel’s writing about his determination to die at age 75, I expected to read more about how old folks aren’t worth spending a lot of money on.

In fact, the article is a moving and sympathetic telling of the case of one woman with metastatic ovarian cancer. She is a wonderful, cheerful 72-year old lady with profound problems. Gawande has many treatment options available to him, and he works with her to find the best match of what he can do with her own priorities – fears, hopes, level of comfort.

There are no sweeping generalities, no implicit policy prescriptions, no judgments about her. It is a love story between a caring physician and his patient. She is depicted as a whole person whose emotions are far more important than lab tests. I urge you to read the article for an example of medicine at its best.

This isn’t the first time I’ve encountered this phenomenon – a doctor who is wonderful with his patients who goes completely off the rails when it comes to public policy. Don Berwick is another. As I wrote in another NCPA post about a speech he gave at a graduation ceremony at Yale Medical School —

“Here is a lovely and loving man, someone who treasures the dignity of the people he cares for, who recognizes and honors their humanity and their sovereignty. How could this man be the same one who, as CMS Administrator, advocated locking physicians into an “evidence-based medicine” regimen that treats patients like mere statistics and confines personal knowledge of them to variables of age, race, and gender (like the Dartmouth Atlas does)? How could he push for the adoption of a program that assigns patients to an Accountable Care Organization without their knowledge or consent?”

I’ve written also about Berwick’s fine little book, “Escape Fire”  and been just as puzzled. For example, he writes –

“Interactions … begin with this assumption: The patient is the source of all control. We act only when the patient grants that privilege, each time.

“Control begins in the hands of the people we serve. If we caregivers wish to take it, we must ask. If a patient denies control, then we must accept their will as a matter of right. We are not hosts in our organizations so much as we are guests in our patients’ lives.”

These physicians are at their absolute best when they are dealing with actual patients. They are the epitome of health “care.” But once they sit down to write policy, they turn from Dr. Jekyll to Mr. Hyde. Which reminds me, one again, that for all the talk of Accountable Care Organizations, Bundled Payments, Interoperable Health Records, and Population Health Management, the essential, irreplaceable transaction in medicine is between one doctor and one patient. Nothing else comes close.