Can Price Transparency in Health Care Really Lower Costs?

Telling patients what they will pay for their health care services is a key stepping stone to more efficient use of health care dollars. Consumers, employers, payers, and the system as a whole would likely benefit if the true cost to the patient were made available before a patient receives a health care service or product.

Several states already have laws on the books requiring health care providers to make at least some price information available on at least some procedures. Some states also run centralized databases where different payers report what they get paid for different services. Additionally, the federal government requires hospitals to post a list of standard charges on the internet.

The Trump Administration wants providers to further expand the price and quality information to consumers, and issued an Executive Order (EO) on Improving Price and Quality Transparency in American Healthcare to Put Patients First in late June. The order aims to help consumers make “well-informed decisions” and expand transparency efforts that provide information “which patients can research and compare before making informed choices based on price and quality.”

More specifically, the EO directs the U.S. Department of Health and Human Services (HHS) to require hospitals to publish negotiated rates in a searchable, consumer-friendly format for 300 “shoppable” services.

You Can Shop if You Want To

Consumers are being asked to make more of these decisions on their own, as we’ve described in previous posts. My home state of Colorado has a shopping tool like the one the EO has in mind. It took me less than a minute to get the result below from the Colorado Center for Improving Value in Health Care (CIVHC) for an MRI scan of a leg joint within 15 miles of my ZIP code:

Shop for Health Care Services – MRI Scan, Leg joint (CPT 73721)

Seems pretty obvious that while the closest option, seven miles away, is Centura Health St Anthony Hospital, they would charge me $510 for the scan. If I drive another five miles, I would only have to pay $150 at Denver Health Medical Center.

“Shoppable,” but Perhaps Not “Buyable”

According to the Health Care Cost Institute (HCCI), “For a health care service to be ‘shoppable’, it must be a common health care service that can be researched (“shopped”) in advance; multiple providers of that service must be available in a market (i.e., competition); and sufficient data about the prices and quality of services must be available.” HCCI estimates that approximately half of out-of-pocket spending is spent on “shoppable ambulatory doctor services.”

The problem is, you might be able to research and compare certain services with upgraded information, thus improving your shopping experience, but you might really struggle to buy the service that is lower in cost.

Using the example of lower-limb MRIs, a 2018 study titled Are Health Care Services Shoppable? Evidence from the Consumption of Lower-Limb MRI Scans found that people typically drive by multiple lower-priced providers to get to their final treatment location. Why? Because that is where the patient’s referring provider sends them. The study shows “the influence of referring physicians is dramatically greater than the influence of patient cost-sharing or patients’ home ZIP code fixed effects.”

In particular, “physicians who are vertically integrated with hospitals are more likely to refer patients to hospitals for lower-limb MRI scans.” We’ve written previously about how costs vary dramatically by site of care. That also means patient cost-sharing varies. We are asked to pay more out-of-pocket for a service we could get elsewhere. But that would mean 1) shopping and 2) acting against the advice of a provider. Not impossible tasks, but difficult for sure.

Increased transparency means you can shop for services, but that is only half of the problem. Yes, it is important to have price and quality information. If the problem were a technical one, more information would lead to different decision making. But in fact, changing the way a consumer selects a health care service – even a “shoppable” service – is an adaptive problem. That is, it requires a change in the way people think, prioritize, and behave.

Additional information on quality and price is definitely necessary, but if I drive by two Centura Health facilities with lower cost MRIs to get to the HealthOne facility my referring provider recommended, I would also need some encouragement, at least, to go against my physician’s recommendation.

It looks like we health policy types have more work to do.