So, Do Transparency Tools Actually Work?

flying cadeuciiA new report by economist Jon Gabel and his colleagues at NORC, a research center affiliated with the University of Chicago, looked at the use of transparency tools in an employer health plan. The analysis found the use of price transparency tools to be spotty. For instance, 75 percent of households either did not log into the transparency tool or did so only one time in the 18-month period of study. Fifteen percent did so twice; but only 1 percent logged in 6 times or more. The authors concluded:

It could very well be that we are asking too much of a single tool, no matter how well-designed. Consumer information for other goods and services on price and quality are seldom dependent upon information gained mainly, if not solely, through a digital tool. Rather, information on relative value is spread far and wide through advertising and other kinds of promotion using conventional, digital, and social media communication channels.

An earlier Harvard study on transparency tools, published in JAMA, found patients do not tend to use the tools to comparison shop for lower prices (in fact, spending rose slightly). An NBER study concluded that when transparency tools do lower spending, it is because consumers used to tools to identify prices and use the information to decide whether they can afford the service and skip it if they cannot.

The transparency tool in the current study also emailed “Ways to Save” suggestions on how consumers could reduce medical spending. The authors made an important observation:

It is also possible that the message on the “Ways to Save” e-mail turned off many households. While the emails did highlight opportunities to save a specific amount of money, a vast majority of the savings were for the employer and a much smaller amount of savings applied to the employee. It is possible that many employees viewed the transparency initiative as simply a means for the employer to save money.

That is a very good point. Encouraging workers to reduce unnecessary spending is all about creating the appropriate incentives. Before they will take the time to comparison shop, consumers must benefit from their efforts. They must also become accustomed to comparison shopping. In this analysis, the firm studied had a deductible for individuals of $1,400 and $2800 for a family of four. The out-of-pocket limit was $2,800 per individual and $4,800 per family. The employer provided an additional $400 in health care benefits per year in the form of a health reimbursement arrangement (HRA) deposit. It would be interesting to tease out who was shopping and why. A healthy, single person with a $400 HRA and only a $1,400 deductible is not likely to worry about the cost of a physician visit. The most they can be out before their health coverage begins to pay significant benefits is $1000 ($1,400 – $400). Moreover, they may not need a service that is easily shopped. An MRI is a commodity procedure whose price could be compared. But a physician visit or a routine blood test ordered during a physician visit is unlikely to be shopped.

I have shopped for blood tests, MRIs, CT scans and cheaper drug prices on many occasions. But, then again, my deductible is $5,000 and I’m a health economist with years of experience.

Another thing I noticed about the study was one of the cost-saving features was selecting a provider. Although I might choose a provider partly based on cost if I have advanced knowledge, I’m less likely to change providers once I have one unless I am likely to save significant amounts. California-based Castlight Health discovered convincing patients to change their behaviors when selecting providers was more difficult than they anticipated.

One impediment to comparison shopping for health care is that many consumers are not regular consumers of health care. They may see their doctor once a year, take a generic drug, or occasionally be referred to a specialist. Many do not need enough regular services sufficient to learn the process. Maybe that is a good thing. If 20 percent of patients consume 80 percent of all health care dollars, maybe it makes sense to concentrate efforts on the 20 percent.

I wonder if the results would be different if performed today on people with a health plan coupled with a $5,000 deductible? Would it be any different using a “high touch” transparency tool? How about if consumers had a patient-centered medical home, where the doctor collaborate with their patient to seek out cost-effective medical care? It’s been my experience that patients are quite willing to save $1,000 on an MRI or switch to generic drugs with nominal copays when they can save a buck.

Devon Herrick is a fellow at the National Center For Public Analysis.

Source: Jon Gabel et al., “Price Transparency Tool Attracts Users But Does Not Lead to Use of Lower-Priced Services,” Changes in Health Care Financing & Organization, Issue Brief, September 2016. Available at: http://www.hcfo.org/files/hcfo/2016GabelPriceTransparencyToolBrief.final.pdf

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  1. There are many simple health care services and goods for which people should shop: Planners and policy folks don’t see this: someone with hypertension simply wants her bp checked; a mother has a child going out for a sports team in school and he needs a sports physical; a long time taker of thyroxine needs a renewal of his prescription or another T-4 test; a parent wants to try the HPV vaccine for his 12 yr old daughter; someone suspects she has iron deficiency with heavy menses and fatigue; a DUI patient needs to have antabuse levels done as required by law; someone needs a pap smear done; some medical tests are needed for insurance underwriting; a mother wants to know if drugs are in her kids urine; a wife suspects her 75 yr old spouse doesn’t see well enough to drive; a young woman wants to know if she is pregnant…ad infinitum..,a very long list.

    It is not easy to shop for these because the system forgot these needs and did not advertise or list prices. No profundity here.

    We desperately need consumer health shops where the simple things in medicine can be obtained without all this ado.