Why Isn’t Price Transparency Working in Healthcare?

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Image credit: wish.com

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 (the subject of a future post), 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.) I wish I had the numbers to know what percent of enrollees would be left after all those exclusions. 30%? 10%? Those enrollees would be the target audience who we want to use the 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 their doctor tells them to go to, for example. It doesn’t even cross their mind that there are cheaper options out there. I think there’s also an assumption that you have to go where your doctor tells you to otherwise your doctor can’t get the results. Thanks, non-interoperable EMRs.

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

What about shoppable services, specifically? Considering all the factors above, the percent of people getting those services who actually shopped first 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 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)

This study supports what I’ve written above. Here are some takeaways from it. It’s 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

A Framework for Categorizing Governments

One of my favorite things is exhaustive, mutually exclusive categorizations. This was true of me even as a teenager, I just didn’t recognize it yet. So when I was taught about different types of governments in my Canadian high school social studies class (democracy, parliamentary system, capitalism, socialism, fascism, communism, etc.), it really bothered me that I couldn’t plot them all on a spectrum to compare them. Many years later, I think I’ve solved this conundrum. I have identified 5 spectra governments can be plotted on, and the best part is that they are exhaustive and mutually exclusive:

1. Political spectrum: Who makes the laws
(autocracy/single person <—-> democracy/everyone)

2. Legal spectrum: How much the laws are spelled out beforehand
(rule of man <—-> rule of law)

3. Economic spectrum: Locus of decision making about the distribution and use of resources
(planned economy/centralized <—-> capitalism/decentralized)

4. Welfare spectrum: Degree of wealth redistribution
(zero <—-> full)

5. Liberty spectrum: Degree of freedom of speech, religion, relocation, job, drugs, sexuality, etc.
(zero <—-> full)

A few comments on these:

Some of these spectra interact. By this I mean that if a government sits at one end of one spectrum, this affects where it is likely to sit on other spectra. For example, an autocracy is more likely to sit closer to the “zero” side of the liberty spectrum because autocrats often limit liberties to maintain their power.

Most of the general government categorizations we think about are silent regarding multiple spectra. For example, when we think of socialism, we usually only think of two of the spectra: the economic spectrum (government ownership of the means of production, so it’s on the “centralized” side) and the welfare spectrum (lots of wealth redistribution). These two characteristics could be instituted by very different governments and still technically be called socialism, such as by a democracy that has a very well-defined body of laws and a ton of freedom about everything else, or by an autocracy where a dictator rules by the law of himself and allows very few freedoms about most things. It helps me understand different government ideals (such as socialism and fascism) better when I try plotting them on these five spectra to see where they land on the ones they have opinions about and also to see which ones they are silent on.

Much of the confusion that occurs when discussing the merits of different governments comes from confusing/mixing these spectra. When you use a single term to refer to multiple spectra (socialism, communism, fascism, etc.), the different spectra seem to get mixed together and the conversation loses clarity. Someone may be talking about their interest in socialism because they feel that significant wealth redistribution is the morally right thing for a society to do, but they may also believe that capitalism/decentralized is the most efficient way to organize an economy to generate sufficient wealth to be able to carry out that welfare. You have to identify the different spectra individually.

A constitution, when seen in the context of this framework, is simply a document that provides hard end points for how far a government can shift toward one end or the other of these five spectra.

A person’s ideas about how to fix healthcare are inseparable from their opinions about government more generally, so our conversations about both will be more productive when we communicate clearly which spectrum we are talking about.

What I Learned from Shopping for an MRI

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Image credit: gehealthcare.com

My wife is a runner and recently improved her running form to avoid injury. Unfortunately, forefoot strikes were new for her feet, and she was going too fast and too far for her anatomy to respond appropriately. During runs, she began having forefoot pain, which progressed to hurt even with walking. This is a classic story for a stress fracture, and her workup led to an MRI.

Knowing of massive price variations in healthcare markets, I suggested she call around to shop for the best price. Here’s what she found:

Option A (20 minutes away): $500 self-pay, $850 with insurance

Option B (40 minutes away): $640 self-pay, $920 with insurance

Option C (40 minutes away): $400 self-pay,

Option D (40 minutes away): $400 self-pay,

Option E (20 minutes away): $675 self-pay,

Option F (20 minutes away): $1,480 self-pay, $560 with insurance

After Option B, she stopped writing down prices with insurance because they were always at least a few hundred dollars more than the self-pay price.

The two best options, C or D, were the same price and distance away, so how about comparing quality? Both had nice websites that talked about how well-trained their radiologists are and how great their MRI machines are, but there were no actual details that could help me determine which would be better quality. So we ultimately chose Option C because the person on the phone was the nicest.

What’s with Option F? It was the only hospital-based option we contacted, and it’s part of the same company as my insurance. I guess they give a massive discount for having their insurance. Their self-pay price is typical of what I have come to expect from hospital-based services–always crazy expensive.

The thing I learned from this experience is that, when you self-pay, that means you aren’t running the money you’re spending through insurance, so the $400 we spent on the MRI doesn’t even count toward our annual deductible! Therefore, price-conscious healthcare shoppers who self-pay are getting a short-term deal but may be subject to more than their annual out-of-pocket max if something big comes up later on.

Our insurer wouldn’t even let us submit our receipt after the fact to count that $400 toward our deductible, which makes sense from their perspective. They don’t want us self-paying potentially higher prices than they have contracted for things because it could use up our deductible faster than it would have otherwise, which would mean they’re on the hook for covering more of our costs of care than their actuaries had planned. You’d think they’d at least add a clause to their policies that says that if patients find a lower price than the insurer was able to negotiate, they will accept that self-paid amount as counting toward their deductible. But in a poorly functioning insurance market, insurers are never forced to put in the effort to make reasonable policies like that.

Fortunately the MRI was negative!

Some Blog Changes

This blog is going to change a little bit, starting today.

Now that I’m finally done all my clinical training and am a fully licensed internal medicine physician and working as a hospitalist, I can start dedicating more regular time to my main passion–health policy. I will be releasing weekly blog posts on Tuesdays (supposedly the day of the week that needs the most morale boosting!). I will avoid any tendency to make these posts too formal, and I will try to keep them short as well.

I have two main reasons for doing this, both of which I would like to be up front about. The first is for me to keep learning. When I write, I’m forced to synthesize my thoughts more deliberately. The second reason is to get more people reading what I write, which will provide me more feedback about my ideas and hopefully (even in a small way) influence greater support for worthwhile policies.

How will regular posts help more people read what I write? My understanding is that a blog needs five things to gain traction: (1) worthwhile material, (2) a dependable timeline for when to expect new posts, (3) persistence in posting that new material regularly for a long time, (4) advertising, and (5) luck. Keeping the same URL helps, too, which I learned the hard way. I will advertise by working to syndicate my posts on other sites, plus sharing on social media.

So, look forward to my post next Tuesday!