Price Transparency: Slow Progress
One family recently received a $629 medical bill for the application of a Band-Aid to their 1-year-old’s finger.1 Their daughter’s brief visit to the ER for a small cut on her finger was concluded with a band-aid. They were later told the Band-Aid cost $7 and the rest of the price was the “emergency department facility fees.”
This family’s experience is far too common. Hospital Pricing Specialists LLC recently concluded a report where it found wide variance in the average price for a CT scan of the head or brain in Pennsylvania facilities. Prices included $185.05 for a doctor’s office visit, $569.16 for a testing facility, and $1,745.05 for a hospital visit.2
Situations such as these have been driving interest in more health care price transparency for some years. However, progress remains slow for reasons we explore in this article.
Health Care Cost Institute’s study of commercial healthcare prices shows that employers and insurers providing private health coverage pay highly variable prices for routine services and procedures, depending on the state where people live.3 The study analyzed 3 billion medical claims from Aetna, Humana and UnitedHealthcare during 2012 and 2013, constituting about 25% of the commercially insured market. The data represent prices actually paid to hospitals and doctors—much more important than the prices charged—but often difficult and sometimes impossible to obtain due to non-disclosure clauses in contracts.
Researchers found the national average price for 242 common services varied extensively across states as well as within metropolitan areas. For example, the average price for a knee replacement in South Carolina paid by one of the three large for-profit insurers was almost $47,000, while the average price of the same bundled procedure in New Jersey totaled only $24,000. In Cleveland, the average price paid for a pregnancy ultrasound was $522 and in Canton, Ohio, the average price was $183.
States with the highest average prices, compared with a national benchmark, included Alaska, Minnesota, New Hampshire, North Dakota and Wisconsin while Arizona, Florida, Maryland and Tennessee had medical services that were priced much lower than the national average.
Researchers said geographic costs certainly play a role in different prices across though it is hard to tell what amount of difference is justifiable. “The remaining variation is most likely due to differences in underlying market dynamics, such as varying market power, a lack of transparency or the availability of alternative treatments,” the authors wrote in their study for Health Affairs. Indeed, other researchers who used Health Care Cost Institute claims data theorized late last year that hospital consolidation often drove up prices unjustifiably.
The Blue Cross and Blue Shield Association has released similar findings on price with data from its member plans, and Cast Light Health found its employer clients also pay wildly different prices for the same procedures depending on where people live.
According to a recent Navicure survey of 300 providers, most providers (88%) have developed the capability to offer patients estimates at the time of service. The growing share of healthcare costs paid by individuals was evident in the 43% of survey respondents who said at least 20% of their revenue comes from patients.
Of course, much of that revenue shift comes from growth in high-deductible health plan (HDHP) enrollment. The share of policyholders who have employer-sponsored insurance and are enrolled in HDHPs has steadily increased in recent years, reaching 28% of employees in 2015, according to an annual Mercer survey released recently. HDHPs also cover 49% of all non-group enrollees in 2016, up from 36% in 2015 according to the latest national survey by the Kaiser Family Foundation.
For a case study, Change Healthcare studied the three-year results from one client using its price transparency tool and found that 90% of the 15,000 employees used HDHPs and 66% acted on information provided to make a related healthcare decision. The high utilization amongst employees was attributed to careful and ongoing education of health plan enrollees, as well as ongoing support from the employer. The case study found the price transparency tool provided one employer with $1.1 million in claims-verified savings. It was also credited with saving HDHP enrollees an average of $516 each year.
The Kaiser researchers urge active reach out to policyholders, writing in their report: “Proactively contacting patients and providing information about less expensive care may be more effective than passively waiting for them to seek this information on their own via a website.”
Similarly, for their April study: “Examining a Health Care Price Transparency Tool: Who Uses It, And How They Shop for Care,” Health Affairs evaluated the experiences in the period 2011–12 of an insured population of non-elderly adults with Aetna’s Member Payment Estimator, a web-based tool that provides real-time, personalized, episode-level price estimates.4 While they found that usage still remained low, overall use of the tool increased during the study period, and for some procedures, the number of people searching for prices was high relative to the number of people who received the service. Among Aetna patients who had an imaging service, childbirth, or one of several outpatient procedures, the study found searchers for price information were significantly more likely to be younger and healthier and to have incurred higher annual deductible spending than patients who did not search for price information.
The results suggest campaigns designed to deliver price information to consumers may be important to increase patients’ engagement with price transparency tools.
The Other Side of the Coin
A recent study published by JAMA found, somewhat surprisingly, that one price transparency tool appeared to increase spending.
Researchers examined healthcare spending among 148,655 employees of two large companies. Spending by those offered a price transparency tool increased when compared with 295,983 employees at companies not offered the tool during a recent one-year period.5 The mean outpatient spending increased by $212 among employees offered the tool and by $153 among a control group. Following an adjustment for demographic and health characteristics, the study’s authors concluded that the tool’s availability was associated with a mean $59 increase in outpatient spending vs $30 for those without an available tool. It is worth noting that the usage of the tool was very low at 10%.
These results contrast markedly with the results in the Change Healthcare study noted above. Some hypothesize that the large difference in usage of the price transparency tool is driving the results.
Price Transparency Tools
In addition to tools from insurance companies, firms such as Change Healthcare (see above), Castlight, Vitals, and Blink Health (drug prices) are focused exclusively on providing price information and tools. As the New York Times recently pointed out, “Even when people have access to the newly available information, they may not use it. And when they do, they may not rely on the insight. It is impossible to know, for example, whether a dermatologist who costs twice as much as another can more successfully diagnose skin cancer.”
Castlight’s experience shows how the early promise of price transparency has been slowed by the complexity of the healthcare world. In business for eight years, Castlight works with employers to give their employees better information in order to, in theory, help workers make better medical decisions. Despite early promise, Castlight has run into several barriers:
- Changing how people pick doctors and hospitals is much harder than expected,
- Getting prices and related information is difficult,
- It is much harder to engage employees when making a healthcare decision (e.g. which provider(s), what care is needed, etc.), and
- Many fewer people are shopping than employers or Castlight expected.
Per the Times, “Castlight executives insist is it still very early. “We overestimated the speed here,” said Dr. Giovanni Colella, the company’s chief executive and one of its founders. “Transparency hasn’t even started,” he said.”
Today’s reality is echoed by Mitch Rothschild, the executive chairman of Castlight competitor, Vitals. “It’s a heavy lift,” he said. “It really requires behavioral change for most of America.”
A major limitation to current tools is the limited quality data. “It’s hard to make heads or tails out of all the quality information out there,” said Suzanne Delbanco, the executive director for the Catalyst for Payment Reform.
Policymakers have acknowledged the importance of price transparency with more than two-thirds of states mandating or beginning to mandate All-Payer Claims Databases that collect payer claims data, according to the All-Payer Claims Database Council. In addition, over half of states have enacted laws or regulations establishing price transparency websites or requiring plans, hospitals, or physicians to provide price information to patients.
However, a recent Supreme Court ruling means that employer “self-funded” plans do not have to participate in All-Payer Claims Databases. As a result, one of the most promising avenues for price transparency has been emasculated, at least for the near term.
At the same time, Representatives Michael Burgess (R-TX), MD, and Gene Green (D-TX) just introduced the Healthcare Price Transparency Promotion Act of 2016.
The act would amend the Social Security Act by requiring states to develop and maintain laws requiring “disclosure of information on hospital charges, to make such information available to the public, and to provide individuals with information about estimated out-of-pocket costs for healthcare services.”
The AHA wrote a letter fully supporting the bill.
Summary: The Consumer’s Experience
A number of factors are currently slowing the trend toward more transparent healthcare prices. But consumer behavior is clearly the biggest factor driven by these forces and others:
- If the medical need is urgent, consumers may not have the time to use the tools and even if they do, their focus is not likely to be on the cost.
- Many consumers are still on employer plans with small deductibles and co-pays, with little financial incentive to compare prices.
- Older consumers with traditional Medicare coverage also have little incentive to compare prices.
- Consumers on high deductible plans who incur significant healthcare costs know that their annual spending will exceed the plan’s deductible, reducing the incentive to look at price.
- In many rural areas and in some other areas, there may only be one specialist, or the prices may not vary much.
- Many people rely on their doctor’s referrals for specialists, tests, etc. Others rely on recommendations from friends.
- If a health plan wants its users to get coordinated care from a closed group of providers, shopping may be discouraged.
- Consumers may avoid low-price care if they perceive low price to be associated with low quality or if quality information is not readily available.
On the latter point, Health Affairs conducted a nationally representative survey to examine whether consumers perceive that price and quality are associated and whether the way in which questions are framed affects consumers’ responses.6 It was found that a majority of those surveyed (58–71%) did not think that price and quality are associated. But a substantial minority did perceive an association (21–24%) or were unsure whether there was one (8–16%). Those who had compared prices were more likely to perceive that price and quality were associated.
Despite the many obstacles, it is clear that pressures for more transparency will increase. But it will take concerted efforts by providers, insurers and entrepreneurs to provide the information, tools and incentives needed for price transparency to have real impact on healthcare costs.