Why Isn’t Price Transparency Working in Healthcare?


I strongly believe that getting people the information and incentives necessary to choose higher-value providers and insurers is the solution to improving value in healthcare (see my Healthcare Incentives Framework). But, you say, we’ve tried that and it doesn’t work, and current efforts are a waste of time!

Here’s an example of some great research that you might use to support your opinion:

Examining a Health Care Price Transparency Tool: Who Uses It, and How They Shop for Care (Sinaiko and Rosenthal, Health Affairs, April 2016)

The news media would see this and report the main findings–that only 3% of enrollees used Aetna’s price comparison tool–and argue that even people who have the opportunity to shop for care will not do it, which they will interpret to mean any “consumer-driven” healthcare effort is proven through evidence not to work. People can wrest information to prove whatever they want.

But what if you actually read the study?

Sinaiko and Rosenthal found that only about 60% of enrollees even had a claim during their study period. And of those 60%, I’m guessing a large percentage of those were outpatient visits (primary care or specialty) with established providers, which are claim types that people historically do not shop for. Think about it, if you have your favorite hairdresser who knows you best, you have a relationship with that person, and you like how they cut your hair, are you going to price shop every single time you need to get your hair cut?

Now take out all the non-shoppable services (something we should look at further sometime), and we’re left with a relatively small percentage of enrollees who may have actually had a reason to shop for care. But, wait, what about the people whose insurance plan required them to pay the same amount regardless of which provider they chose? (Remember, people need an incentive to choose higher-value options.) That’s a lot of exclusions, and I wish I had the numbers to know what percent of enrollees would be left. 30%? 10%? Those are the enrollees who would be the target audience for this price comparison tool.

I assume Aetna did a good job notifying people about this price comparison tool, so maybe 75% of people read the mailer and then half of them remembered it when it came time to shop for care. Why only half? Because people aren’t yet accustomed to shopping around for value in healthcare. They’re used to going to the lab or imaging center or specialist their doctor tells them to go to. It doesn’t even cross their mind that there may be cheaper options out there. There’s also an assumption that you have to go where your doctor tells you otherwise your doctor can’t get the results. It’s not true, but it can be very inconvenient to get records from somewhere. Thanks, non-interoperable EMRs.

So what are we left with? 3% of enrollees seems about right.

But what if we look specifically at services that are known to be shoppable? Considering all the factors above, the percent of people who shopped before getting those services blew me away. Tonsillectomy: 54%. Total knee replacement: 48%. Inguinal hernia repair: 27%. Cararact or lens procedure: 18%. Vaginal delivery or C section: 16%. Carpal tunnel release: 12%. These lower-percentage ones strike me as the ones that would more commonly be performed by a doctor you’re already established with (again, making you less likely to shop around), but I could be wrong here.

Anyway, you know what this proves to me? That price comparison tools can work! And I believe they will be used more and more as people start getting insurance plans that require them to pay more for more expensive options, and as they remember they can shop for price. The younger generation will probably drive a lot of this because they will be more used to using these tools and shopping for care and will eventually get older and start needing more services.

Here’s another great paper that sheds more light on this topic:

Americans Support Price Shopping for Health Care, But Few Actually Seek Out Price Information (Mehrotra, Dean, Sinaiko, and Sood, Health Affairs, August 2017)

Check out these numbers, looking specifically at people who have the type of insurance plans that would give them an incentive to compare prices:

  • 72% of people think it’s really important to shop for value in healthcare
  • 93% of people know prices vary greatly among providers
  • Only 22% of people think higher prices in healthcare equate to better quality
  • 75% of people said they don’t know of a resource they can use to compare costs among providers
  • 77% of people who didn’t price shop for their last healthcare service said it was because they were seeing a provider with whom they were already established
  • Only 1% said they didn’t shop because it was emergency care

I’m impressed that so many people know about the unwarranted price variations and think shopping in healthcare is important, but it’s sad that only 25% of people even know of a resource they could use to compare costs. And, like I said above, we see that most people aren’t doctor shopping when they’ve already established with a provider.
So, instead of making the jump from “price transparency doesn’t work right now” to “price transparency will never work,” let’s take a more constructive approach and actually understand what’s interfering with people shopping for care so we can fix it. Because even Medicare for All will not be a solution to our healthcare spending problem without getting people to shop for their care.

Taylor J. Christensen is an internal medicine physician and health policy researcher who blogs about how to fix the healthcare system at clearthinkingonhealthcare.com.

23 replies »

  1. The price or the cost of any medicines is a very crucial thing as it leads the research, maintaining, marketing, and much more cost in itself and that is why it costs high. While generic medicines are very cheaper in comparison to branded medicines. As far as price concerned it depends on many factors such as cost to develop the medicines, marketing price, doctor prescription, availability and more.

  2. When I need a surgical procedure, what I want most is a good outcome. My impression is that there is a lot less variance in how much one surgeon is reimbursed vs. another but a huge variance in the reimbursement rates for academic medical centers, community hospitals and ambulatory surgical centers. Doctors don’t need to know the exact reimbursement rates to be aware of that general fact. I’m more than happy to get my next colonoscopy at a surgical center as compared to a community hospital or a teaching hospital. The other important issue, of course, is whether or not the doctor is in the insurer’s network. This is mainly an issue with emergency care and ambulance companies.

  3. I think you are saying “if insurers could offer worse plans patients will care more about what they pay”. In the same way if supermarkets didn’t bother with quality control, consumers will have more of an incentive to inform themselves of the freshness of the carrots. Meaning, the way to create price transparency is not by downgrading insurance but by creating a consumer market. In such a market some patients would love white-glove services where they don’t need to care about the cost, while others would prefer cheaper plans where they have more skin in the game. I invite you to read my piece on the topic:

  4. Under Medicare for all, there could be significant and adverse unintended consequences. These include increased utilization due to no cash due from patients at the point of service and doctors trying to make up for lower fees with increased volume, much longer wait times for non-life threatening care including hip and knee replacements, back surgery, imaging, etc., older doctors accelerating their retirement and younger aspiring doctors pursuing other more lucrative careers because the lower income from lower reimbursement rates is no longer worth the time and financial cost it takes to become a doctor. In addition, the hoped for administrative savings could well be much less than estimated and the proposed tax increases on the wealthy and corporations may not raise anywhere near as much money as estimated which will ultimately result in much higher taxes on the middle class which would be consistent with the middle class tax burden in other developed countries. Be careful what you wish for.

  5. I know about 11 good hip docs in the area. Each one has about 75 different fees for different insurers, not including facility fees, anesthesia, etc. All the above are in and out of various networks depending on the day of the week, and some are not taking new patients until some undetermined date in the future.

    One patient referral and three hours later, I’m ready to see patient number two.

    This “dump the grunt work on the primary” is sickening.

  6. “1) Employee loyalty.”

    No, trapped employees who can’t pursue better pay and opportunity with either another employer or self employe.

  7. “Healthcare in the U.S. is far more expensive than in most industriaized countires (Europe, Canada, Israel, etc.) because our Health Care Culture is so very different.”

    Yes, here it’s run by venture capitalists. Show me Canadians (and others) who shop for price.

  8. That is definitely the way they are most likely to implement Medicare for All if it becomes law one day. But in the linked article from that sentence, I explain how our long-term trend of spending increases will not be solved just by switching to Medicare for All. Implemented correctly, however, Medicare for All could be very effective at “bending our cost curve.” This may be of use, although you need to read all the posts in the series for it to make sense:

  9. Maggie, I appreciate your concern that patients are generally not well equipped to understand the intricacies of medical treatments. You are right–I don’t expect my patients to understand all of the physiology I’m thinking through when I decide to give them a certain medicine, although I do my best to explain what I’m doing and why.

    I think what Roey was saying in his response is that, when it comes to choosing the right orthopedist for a knee replacement, you don’t need to understand the technical details of the surgery itself. But you should be given easy-to-understand quality information, such as the success rate of different orthopedists.

  10. Providers often have a good sense of which doctors are good in their region, but not always. I work as a hospitalist and recently moved to a different state, and I am starting to get to know some of the surgeons around here, but I mostly only know how friendly they are rather than their technical skill.

    But there are other issues with asking doctors to choose for patients. I as a physician don’t know what a patient values most, which certainly affects which aspects of quality would be important to them. I also don’t know how much a patient is willing to spend for slightly higher quality. So as for choosing among different providers, that is a personal decision the patient needs to make.

    However, when it comes to choosing among multiple treatment options for a given ailment, definitely the physician needs to explain the risks and benefits of each option to help the patient decide.

  11. You are right–the only cost patients should be expected to care about is what they themselves will pay, which is determined by their insurance plan. If insurers could (1) change their plans’ cost-sharing policies so that patients pay more when they choose a higher-priced provider and (2) make those expected out-of-pocket costs known beforehand, patients would then have an incentive to consider price. Optimally patients would be given easy-to-understand quality information about those providers too. Then they would have the information AND the incentives necessary for them to choose higher-value providers.

  12. Visit my post from today, I think I answer some of these questions there. If we HAD a consumer market in healthcare, we would have had the consumer reports you talk about. Right now we don’t have such a market, so naturally it lacks many of the attributes of a sophisticated consumer market.

  13. The problem with your argument is information asymmetry. Most patients are either passive or they rely solely on their doctors for a referral. Even though I’m a more engaged patient than most, I rely on my doctors for referrals to surgeons, oncologists, etc. If the patient tells the doctor that out-of-pocket cost is an issue for him or her, the doctor is usually more than willing to work with them.

    In electronics and telecom as well as other areas of commerce, consumers usually have access to objective information about performance, quality and cost from organizations like Consumer Reports and Underwriters Laboratories. Where are patients supposed to find similar information about healthcare choices from sources they trust other than then their referring doctor?

    A lot of what primary care doctors do is refer patients to specialists when needed. I don’t think it’s unreasonable to expect them to be able to assess the cost and quality of going to different doctors and hospitals that they refer patients to. We can make this easier for them by finding ways to make the cost information they need more readily and easily accessible.

  14. Do we want doctors to be the “stewards of society’s finite resources” or would we prefer this mission creep to not interfere with their true mission – to treat patients? The current flavor of “healthcare reform” is an exercise in dumping on providers all sort of things they were never meant to do: tracking this and tracking that, engaging in “population health” (whatever that means), assuming upside risk, assuming downside risk, etc. etc. All of this is a rather Soviet-like attempt to control and top-down-manage 20% of the American economy through administrative complexity.

    Instead, and true to our heritage, we should unleash healthcare and let the market optimize the relationship between supply, demand and quality through the pricing mechanism. The 20% who will still need some sort of assistance can be given subsidies. Once we do that, the innovation of the free market system will truly transform healthcare in ways we cannot even imagine, in the same way that innovation transformed telecoms and electronics. BTW – This is more or less the Swiss model, only the Swiss market is much smaller in scale.

  15. I have a different take on this.

    While insurer price shopping tools are all well and good, I think price and cost information is much more valuable in the hands of doctors and their staffs. If we want doctors to be wise stewards of society’s finite financial resources, we need to make it as easy as possible for them to identify the most cost-effective high quality providers in real time. Historically, doctors did not consider it part of their job to know or to care about costs but that is starting to change.

    Suppose I’m a primary care doctor and I have a patient who needs a hip or knee replacement. I probably know at least four or five (or more) surgeons who are good and that I would be fully confident to let them work on me if I needed the procedure. To which doctor should I send my patient? It’s helpful for me to know that academic medical centers have inherently higher costs than community hospitals because of their medical education and research missions. Community hospitals have inherently higher costs than ambulatory surgical centers because hospitals must operate around the clock and the surgical centers don’t. For the same reasons, non-hospital owned independent imaging centers have inherently lower costs than community hospitals and academic medical centers. If my patient is otherwise healthy and generally low risk, it makes sense for me to send him to one of my preferred doctors who does much of his or her work at an ambulatory surgical center where the procedure will likely cost the payer half as much as compared to a community hospital. By the same token, if I’m in Boston, I will probably know that Partners Healthcare has the market power to extract significantly higher reimbursement rates from commercial payers than their competitors for the same work with no difference in quality. It would make sense for me to avoid referring patients to Partners doctors and hospitals to the extent that I can. If I have an arrangement with payers that rewards me for keeping overall costs as low as possible while still ensuring that my patients get good quality care, that will encourage me to be more cost-conscious than I might be without the extra incentives.

    Insurers will tell you that their medical claims costs break down into three buckets as follows: 40% for hospital care both inpatient and outpatient combined; 40% for physician fees and clinical services like imaging, physical therapy, etc. and 20% for prescription drugs. Medicare’s spending also breaks down roughly along those lines. Note that a significant percentage of physician fees and clinical services is for care that takes place in a hospital setting. So, the more care we can safely drive out of hospitals, the better in my opinion.

    Finally, there are several cultural issues that drive up U.S. healthcare costs that are independent of the price transparency issue. First, the litigiousness of our society leads the medical specialty societies which develop the practice patterns that define the standard of care to include significantly more testing like imaging and blood work than is typical in other developed countries. Second, societal attitudes toward end of life care means that we provide a lot more of it at high costs than other developed countries do. In the socialist countries of Western Europe, the social compact includes the notion that you don’t impose unreasonable costs and expectations on your fellow citizens. In the U.S., the prevailing attitude is I want what I want when I want it and I expect someone else to pay for it. Third, virtually everyone who works in healthcare from doctors and nurses to IT specialists, techs, administrators and executives all make significantly more money that their counterparts in other countries. Much of that will not likely be impacted by healthcare reform and, to the extent that it is, it could lead to significant adverse unintended consequences especially with respect to the income of doctors, nurses and other healthcare providers.

  16. Roey-

    Thank you.

    Yes, “patients” are not “consumers”

    Some are very ill and in no position to comparison shop.

    Others are well and might shop for knee or hip replacements.
    Cancer patients who are in remission also might shop for further treatments.

    But, as you suggest, patients don’t have the medical training to compare the effectiveness of services that different
    providers offer at different prices.

    We can’t expect most patients to read the medical research which might tell them which treatments seem best.

    What we need is CMS (Medicare &
    Medicare) looking at the research & then deciding
    which procedures & treatments are likely to benefit which
    patients (based on the patients’ medical profiles)

    If Medicare stopped paying for those treatments that will expose many patients to more risk without benefits, Medicare’s costs would plummet.

    Private insurers have already said they would follow
    Medicare/Medicaid if it began to reject treatments &
    operations that won’t help certain patients.

    To make these decisions Medicare could tap widely available
    medical reserach (published in medical journals)
    to zero in on treatments & sugeries that Will Benefit
    patients who fit a particular medical profile.

    This is what many call “Patient-Centered Medicine”

    Why Hasn’t Medicare Already Done This?

    Congress Controls what Medicare Pays For.

    And Lobbyists that represent our most expensive
    Hospitals , Specialists & Drug-Makers
    Control Congres.

    These lobbyists contribute the huge amoutnts of money that these politicans need to campaign during our extraordinarly long campaigns

    How can we addresss these problems?

    First, let employers continue to pay a large share
    the nation’s health care costs.
    Fully Fifty Perecent of Americans now have health
    care insurance at work.

    That’s 50% of Americans that tax-payers don’t have to pay of–unless we adopt Warren’s plan (which eliminates all
    employer insurance.)

    Is the insurance they get at work Good?
    The vast majority of these employees report that they are “satisfed’ or “very satisfied” with the coverage they
    get through their employer plans

    If they’re Not Happy with the Insurance they get at work
    Sanders & Almost All Dem Candidates
    -Except Warren & Bernie–
    would let them chose a govt plan
    one of the Obamacare
    plans ) instead.

    Most Dem candidates (except Warren & Bernie)
    would let an individual Choose
    whether he/she wanted to be in
    a totally New Govt plan, or an insurance
    plan that he already liked

    Warren’s Plan Gives Americans No Choice.

    Everyone would have to be shoved into the
    government plan that she has designed

  17. Hi Maggie – Your argument regarding falling wages is not well-founded, alas. Wages fall when the value of labor falls, meaning, when employers have less of a need of employees (due to, say, automation) or when the supply of labor increases, providing employers with higher bargaining power. So I am not persuaded that your predictions are realistic.

    Regarding the uniqueness of healthcare – We all like to entertain the idea that what we do is ontologically different than anything else in the world, but only rarely is this the case. I recommend that you look into the Swiss and Dutch models. So many countries have experimented with so many things, that it makes a lot of sense to learn from the experience of others.

  18. If employers lose the tax breaks that they receive in return
    for paying a large share of the cost of employees’ insurance,
    workers wages will fall.

    Why? When employers pay for insurance, they get something in return:

    1) Employee loyalty.(Employees are less likely to quit if their employer offers good insurance. When employees leave, this
    means high costs for employers who must train the replacements.)

    2) Fewer sick days. When employees have insurance that lets them (& their children) go to primary care doctors where they
    get preventive care, many fewer call in sick-or come to work
    too sick to work well.

    Finally, let me add, healthcare has little to do with
    “shoes, financial services, car insurance or bananas.”

  19. Many markets have “non-informed consumers”, it’s not a unique feature of healthcare. Do you understand the technology behind your iPhone or even your toaster? Have you been to engineering school? Do you understand the intricacies of Vanguard vs. Schwab? Have you majored in Finance? The way we overcome the gap in information is by relying on expert reviews, which are then translated into market reputation, prices, etc. The reason this does not happen in healthcare is that the market is not competitive. Or more accurately, it’s not a consumer market.

  20. Taylor-

    You are entirely right that it is far too soon to conclude that
    because “price transparency doesn’t work right now”
    “price transparency will never work.”

    Persuading patients to “shop” when they need an expensive procedure
    (for example, a hip or knee replacement) will require a cultural change
    in how patients think about healthcare.

    And cutural changes do not happen rapidly.

    Healthcare in the U.S. is far more expensive than in most industriaized countires (Europe, Canada, Israel, etc.) because our Health Care Culture is so very different.

    American patients expect that everything can be cured, as long as the doctor & hospital is “the best.”

    Most often, we equate “the best” with price.

    I was suprised by the research you cite which suggests that many patients don’t believe that more expensive care is better care.

    This may well be because I live in Manhattan.

    Here, patients actually brag about how much their doctor charges. Friends tell me this also is true in L.A., parts of Florida and other
    big cities on the Coasts.

    No doubt, this is because most people who can afford to live in these places are well-insured.

    Perhaps more importantly, they deeply believe :
    “you get what you pay for.”

    In truth this applies to many of the things we buy, but not

    Patients aren’t typical “consumers.” They haven’t been to med school, and just aren’t in a position to evaluate the quality of what they are purchasing.

    After the fact, they know whether the surgery worked or it didn’t, but if it was successful, they can’t know whether it would have worked just as well, with a different doctor or hospital that charged signficantly less.

    If the treatment or procedure fails, they don’t have the expertise to know “Qhy?”

    Perhaps the surgeon the patient liked is pretty good, but doesn’t keep up on the latest research.

    Or, maybe this surgeon tends to use the hip & knee replacements that are newerst, even if we don’t know that much about tests results with these new devices. He may even work as a paid consultant to one of the deivce companies that are making the newest, cutting-edge products.

    If you read the reserach in medical journals, you know that too many of these devicea are not fully tested before they hit the market.

    But we can’t expect patients to read medical journals.

    Bottom line: Patients are not “informed consumers.” They just can’t know enough about the complexity of the services they are purchasing.

    And they really don’t want to know about the many unknowns
    surrounding those services.

  21. “Because even Medicare for All will not be a solution to our healthcare spending problem without getting people to shop for their care.”

    No, people will not have to shop because (as is the case now) Medicare will set prices for services – the way it should be.

  22. Price transparency – what services cost? What am I missing? If individuals are shopping for value what they need to keep in mind is whether or not the provider is “in-network” because that is surely the biggest driver in their cost share. The vast majority of physicians I know charge whatever they want but in the end they adjust down to the contractual allowable. The patient deals with the pre-determined cost-share based on their particular plan. Unless you are dealing in a non-insured world, non-covered service, or some other model that does not rely on a negotiated fee schedule then what they charge is a side issue. If you are securing care out of your network then what they charge is a huge issue and worth checking into.

  23. In the same way that sleeves alone will not make a shirt, price transparency alone will not make a competitive healthcare market. In fact, price transparency is an attribute, not a generator, of a consumer market. Think about the market for shoes: There are many offerings out there, lots of ways for consumers to obtain shoes, so they begin to “shop around” directly (using their own judgement) or indirectly (using the judgement of “Vogue” or “GQ”). Because they shop around, prices become an attribute being exposed.

    None of that, of course, is relevant to the kind of healthcare market we have in America. With or without prices, shopping around is hardly possible. Most of us have our costs, whatever they may be, covered by the insurance we receive from work. There is no consumer market. So we try to force one into being through things like “value”, “price transparency” and other regulations that only push the market further back into a non-competitive position.

    On the bright side, all of that can quickly change if we heed Regina Hertzlinger’s advice and cancel the insurance tax breaks for employers. Overnight a consumer market will emerge with all the transparency and sophistication we are familiar with from the realms of shoes, financial services, car insurance or bananas.