Brookings Institution
July 26, 2016
More than price transparency is needed to empower consumers to shop effectively for lower health care costs
By: Paul Ginsburg
As the nation still struggles with high healthcare costs that consume larger
and larger portions of patient budgets as well as government coffers, the search
for ways to get costs under control continues. Total healthcare spending in the
U.S. now represents almost 18 percent of our entire economy. One promising
cost-savings approach is called greference pricing,h where the insurer
establishes a price ceiling on selected services (joint replacement,
colonoscopy, lab tests, etc.). Often, this price cap is based on the average of
the negotiated prices for providers in its network, and anything above the
reference price has to be covered by the insured consumer.
A study published in JAMA
Internal Medicine by James Robinson and colleagues analyzed grocery
store Safewayfs experience with reference pricing for laboratory services such
as such as a lipid panel, comprehensive metabolic panel or prostate-specific
antigen test. Safewayfs non-union employees were given information on prices at
all laboratories through a mobile digital platform and told what Safeway would
cover. Patients who chose a lab charging above the payment limit were required
to pay the full difference themselves.
Employers see this type of program as a way to incentivize employees to think
through the price of services when making healthcare decisions. Employees enjoy
savings when they switch to a provider whose negotiated price is below the
reference price, whereas if they choose services above it, they are responsible
for the additional cost.
Robinsonfs results show substantial savings to both Safeway and to its
covered employees from reference pricing. Compared to trends in prices paid by
insurance enrollees not subject to the caps of reference pricing, costs paid per
test went down almost 32 percent, with a total savings over three years of
$2.57 million – patients saved $1.05 million in out-of-pocket costs and Safeway
saved $1.7 million.
I wrote an accompanying editorial in JAMA
Internal Medicine focusing on different types of consumer-driven
approaches to obtain lower prices; I argue that approaches that make the job
simpler for consumers are likely to be even more successful. There is some work
involved for patients to make reference pricing work, and many may have little
awareness of price differences across laboratories, especially differences
between those in some physiciansf offices, which tend to be more expensive but
also more convenient, and in large commercial laboratories. Safeway helped
steer their employees with accessible information: they provided employees with
a smartphone app to compare lab prices.
But high-deductible plans like Safewayfs that provide extensive price
information to consumers often have only limited impact because of the
complexity of shopping for each service involved in a course of treatment --
something close to impossible for inpatient care. In addition, high
deductibles are typically met for most hospitalizations (which tend to be the
very expensive), so those consumers are less incentivized to comparison shop.
Plans that have limited provider networks relieve the consumer of much
complexity and steer them towards providers with lower costs. Rather than
review extensive price information, the consumer can focus on whether the
provider is in the network. Reference pricing is another approach that
simplifies—is the price less than the reference price? What was striking about
Robinsonfs results is that reference pricing for laboratories was employed in a
high-deductible plan, showing that the savings achieved—in excess of 30 percent
compared to a control—were beyond what the high deductible had accomplished.
While promising, reference pricing cannot be applied to all medical services:
it works best for standardized services and where variation in quality is less
of a concern. It also can be applied only to services that are gshoppable,h
which is only about one-third of privately-insured spending. Even if reference
pricing expanded to a number of other medical services, other cost containment
approaches, including other network strategies, are needed to successfully
contain health spending and lower costs for non-shoppable medical services.