"Price Transparency" Doesn't Curb Spending In Medicine

I love price transparency. When I book an airline seat, I will base my entire decision around the fact that one flight is $3 cheaper. Leg room be damned. But does price transparency work in the healthcare industry? A study appearing in the Journal of the American Medical Association may be telling us something important: Healthcare isn't like other industries.

For the video version of this post, click here.

What you will pay for a given office visit or procedure is a nebulous thing at the best of times. While websites have sprung up offering comparison shopping for things like mammograms, colonoscopies, and hernia repairs, it's often hard to know exactly how that advertised price will interact with your own insurance plan, deductible, and various co-pays. In other words, price shopping in medicine is really hard.

The JAMA study looked at two very large corporations that partnered with Truven Health Analytics (recently purchased by IBMs Watson group) to give their employees access to a robust cost-comparison tool.  The cool part about the tool is that it included information about your own health plan, including how much of your deductible you'd spent so far, to give really accurate estimates of out-of-pocket and total costs for various procedures and visits.

The researchers compared spending habits among employees in the year prior to the tool being available with the year after, using matched controls to account for secular trends.

And it didn't work.  At least, if the hope was to get people to spend less on healthcare.  In fact, those who had access to the tool spent a bit more than those who didn't (roughly 60 dollars a year more – not much, but hardly the "billions saved" that the Truven website promises). Moreover, the transparency tool users were more likely to use pricey hospital-based outpatient departments instead of freestanding clinics.

The more interesting questions is – why?

Well, for one thing, not many people bothered to use the tool – about 10% of employees tried it out in that first year. Additionally, the tool reported both out-of-pocket and total costs. It's conceivable that, when presented with the same out-of-pocket cost, a reasonable human might choose the service with a higher total cost – after all that's the better deal, right? The researchers point out that most of the searches on the web tool were for procedures that would exceed the deductible, making price-shopping more or less moot.

Finally, let's not forget that healthcare is not really a commodity. Patients like their doctors, their health system. There is real value in getting care all in one place.

So healthcare is not where the airline industry is, which I'm sure is a relief to hospital CEOs nationwide. For price transparency to really matter, we would need a radical change to our insurance policies. But that is something most patients, and most politicians wouldn’t buy.