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.

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One Response

  1. […] far on price transparency. But the researchers uncovered something even more interesting, via the Real Health Reform blog (h/t Ben […]

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