Another Article Shows that Price Transparency Tools Don’t Work (Plus My Explanation Why)

I have a bunch of papers I’ve saved to read, and I think it’s time to start going through them.

This one is called Online Advertising Increased New Hampshire Residents’ Use of Provider Price Tool But Not Use of Lower-Price Providers. It’s in Health Affairs, 2021, and was written by Sunita Desai, Sonali Shambhu, and Ateev Mehrotra. I always look forward to reading studies that Dr. Mehrotra was involved in.

Based on the title, you can guess that this paper will be good to challenge my assertions that people can make value-sensitive decisions if they are given the right information. Let’s see what they found!

The background to this study is that price transparency efforts are “plagued by low consumer engagement.” Typically less than 15% of people actually use whatever price transparency tool (usually a website) was provided, and often the number is much lower. So the question is, are so few people using these price transparency tools because they don’t know they exist, or is it for some other reason? Possible other explanations the researchers provide include patients just plain not being interested in using the price transparency information, and patients wanting to use the information but being unable to for some reason.

To answer their question, the researchers launched a “large targeted online advertising campaign using Googe Ads to increase awareness of and engagement with New Hampshire’s price transparency website.” Then, if the ads drove awareness of/traffic to the price transparency website but the claims data still did not reveal any changes in how often patients select lower-price providers, they could conclude that awareness isn’t the main contributor to the ineffectiveness of price transparency websites.

They created ads for three specific services: emergency department visits, physical therapy services, and imaging services, all chosen because they’re generally shoppable (yes, that includes emergency department visits, because the authors acknowledge that a high percentage of ED visits would be more amenable to urgent care!) and because their cost is typically low enough that people will not meet their deductible by receiving the service, which means they’ll usually be paying out of pocket for some percentage of the service.

The ads took people straight to the NH HealthCost website, which uses as its source data actual negotiated prices between provider-insurer diads (oh, the magic of all-payer claims databases!) (gag clauses be damned), although it doesn’t plug a patient’s exact plan or year-to-date spending info into the website to give an exact out-of-pocket cost; the best it can offer is an “estimate of procedure cost” and it also gives a “precision of the cost estimate” (low or high).

After spending $39,000 on ads over the course of 6 months, the website traffic went up from 265 visits/week to 1,931 visits/week. People who clicked on the ads spent, on average, about 30 seconds on the site. I just tried going to the site myself, and 30 seconds is definitely not enough time to truly search for a procedure and use the results to choose a provider. But maybe they returned later and spent more time on the website, which is plausible since the non-ad-related visitors typically spent more time than that.

Voila, awareness can drive traffic to a price transparency website! They cannot exactly calculate what percent of all patients who used one of those three services during the study period visited the website, but best-case estimations are 77% of ED visits, 13% of imaging services, and 54% PT visits. The true numbers may be much lower. But still, it’s enough that you’d think there would at least be some measurable difference if going to the website impacted provider selection.

Nope. Not at all. When compared to other states (as a control group, using a difference-in-differences analysis), there was absolutely no measurable impact on provider selection.

Before reading this paper, I was a little surprised at the title. But now, having read the paper and checked out the website myself, I’m not surprised.

Think about it this way: Have you ever compared Amazon prices on your phone when shopping at a brick-and-mortar store? I think a lot of us do that. Americans seem to be very interested in saving money and getting the best value as often as we can. But if we’re at Walmart and the best we can get when we pull up Amazon on our phones is, “This item will cost approximately $10 less than what you’re seeing right now in Walmart, and the precision of this estimate is low. Also, we can’t say anything useful about the quality of this product since there are no helpful reviews.” How influential do you think that would be for people? It almost seems like the risks of ending up with a more-costly or lower-quality product are high enough that you might as well go for the sure and familiar thing right in front of your face. I suspect it is the same with provider decisions.

The investigators summarized this perfectly when they said, “Our findings emphasize that awareness of prices does not simply translate into price shopping and lower spending. There are numerous barriers to using price information. People might not know the details of their benefit design to infer their out-of-pocket expenses. Customized out-of-pocket spending estimates may be critical.”

Agreed. They nailed it. And another thing is critical: easy-to-understand and relevant quality information. I’ve still never seen a real-world research study that’s been able to give patients both exact out-of-pocket prices and relevant quality information side by side. Those two details, plus insurance plan designs that require patients to pay more if they choose a higher-priced provider, are all essential to actually impacting patient decisions about where they will receive care.

Think of these efforts to get patients to alter their provider decisions as a bridge. This bridge has to span a deep chasm 30 metres wide. If the bridge uses three piles, each supporting a 10-metre long deck, the only way to cross to the other side is by having all three of those decks in place at the same time. Even if you build two of the three decks, almost nobody is going to cross that bridge. Likewise, very few patients will risk choosing a different provider than the default one (the nearest one, the one their friend recommended, the one their doctor mentioned, the one they’ve gone to before, etc.) unless they have all three of those pieces in place.

So, this study is useful in showing that awareness can drive a lot more traffic to shopping tools. That’s an important insight. But it was not designed to be a test of how much giving patients all three decks of that bridge will impact their provider selections. I doubt I will ever see a significant change in provider selection as a result of a price transparency effort until patients have all three of those required pieces of information at the same time. Which makes me mourn all over again that CMS did not fund the study I designed for the Utah Department of Health. It would have been the first to build that bridge and then watch what happens to patients’ provider selection and prices and quality in the market.

Why Does GoodRx Exist, and How Does It Work

Stacks of GoodRx cards sent to me at my place of employment

Last week, I wrote about pharmacy benefit managers (PBMs), which are the companies that insurers contract with to help them create and manage their drug formularies. These PBMs also have significant power in the market as the ones who, to a fair extent, influence which prescriptions patients get because they control the patient’s copay for each medicine, so they take advantage of that by getting kickbacks from manufacturers to make those manufacturers’ drugs cheaper for patients.

And now PBMs come into play again this week as we look at GoodRx. The most useful source I found when reading about GoodRx is right on the company’s website, an FAQ for pharmacy staff. Also, this review of their public filings was very helpful.

First, what is GoodRx? It’s a company that offers a free prescription card that patients can use to get discounts on their medications, and you can check what the discounted price will be at pharmacies in your area. (They’ve since branched out now into subscription programs and telehealth, but I’ll focus on their original line of business here.) GoodRx prescription discount cards don’t work in addition to insurance; rather, you either buy the medication through your insurance plan or you pay without insurance and use a GoodRx card to get a better price.

I have no financial interest in GoodRx, but it seems like a no-brainer for anyone who is about to buy a medication through insurance to ask how much their copay will be and then pull up the GoodRx app right then and there to see if any local pharmacies can offer the med cheaper through GoodRx (and, according to a couple journalists who tried that, they got a cheaper price through GoodRx about 40% of the time for the most commonly prescribed medications). Just remember though that the money spent on medications when using GoodRx does not count toward your deductible.

It makes sense that there would be a website/app that lists the prices of medications at multiple pharmacies so patients can price shop, but what’s with these discount card prices being lower than the cash prices?

Pharmacies, in their contracts with PBMs, will not get paid more than their list price. So, to avoid missing out on money that PBMs would be perfectly willing to pay them, they make sure to set their list price (i.e., cash price) higher than what any contracted price with a PBM will be. So you should expect cash prices to always be higher than the price you’ll get by going through your insurer, although I’m sure this rule is broken sometimes. Because it’s American healthcare.

On the GoodRx website/app, the prices shown are not cash prices though. They’re the actual prices that pharmacies have contracted with PBMs. These prices vary significantly from pharmacy-PBM contract to pharmacy-PBM contract, mostly because of the complexity and sheer number of different medications that they are negotiating over, which means they cannot possibly negotiate over every individual medication, so instead they negotiate over groups of medications. This means some medications in that group will end up being cheaper than they would otherwise be, and others in that group will end up being more expensive.

This is summed up nicely in a quote by GoodRx co-founder, Doug Hirsch: “We said, let’s see if we can gather all these prices and see if we can exploit the variation in these contracts.”

But this means pharmacies are stuck selling medications to tons of people at prices that they accidentally undervalued in a negotiation with a single PBM. Sure, short of adding a gag clause to their contract, they can’t stop the PBM from sharing that price with GoodRx, but why in the world would pharmacies ever agree to let tons of other patients not even covered by that PBM walk out with a medicine for that same undervalued price?

They actually don’t have a choice. PBMs require in their contracts with pharmacies to accept the GoodRx discount card price. GoodRx does try to make pharmacies feel better about it by saying that “once patients are in the pharmacy, they are also more likely to purchase non-prescription items at the store.” Ok great, so the medication turns into a forced loss leader.

There’s one more big piece to this puzzle. Why would PBMs go along with GoodRx in the first place? Think about it from their perspective. They are angering pharmacies by forcing acceptance of GoodRx as part of their contracts, and they are the ones sharing all their contracted prices with GoodRx and then left looking bad after patients find out their PBM didn’t get the best negotiated price on a large minority of medications. In short, what’s in it for the PBMs?

Money. I suspect the PBM is getting a cut of every transaction that uses GoodRx because the PBM is the one adjudicating the claim. They’re also giving a cut of it to GoodRx as a reward for bringing them the extra claim.

PBMs and GoodRx both seem to win, as do patients if they’re finding lower prices. So if GoodRx is actually decreasing prescription spending, where is the money coming from? There’s only one party left. Pharmacies must be the ones taking the loss. I wonder if that loss-leader argument actually makes pharmacies more than they are losing on this whole venture. My suspicion is that it’s hard to prove one way or the other, but I doubt it.

Why Aren’t Prices Transparent in Healthcare?

Image credit:

I had a friend ask me that (the title of the post) a few days ago. He prefaced the question by saying he’s asked a few different people and knows already that there isn’t a simple answer to it. But those other people he asked misled him. The answer actually is quite simple. And why nobody is explaining this clearly, despite all the talk about price transparency in healthcare these days, is a symptom of a general lack of understanding of how industries actually function.

Prices are transparent in healthcare–the insurer knows exactly how much they’ll pay each healthcare provider for every service they cover. The problem isn’t transparency. The problem is that the party making the decision on where to seek care is not the same party that bears the financial consequence of that decision. Who chooses where to seek care? The patient. Who bears the financial consequence of that decision? The insurer. Therein lies the rub.

Think about two different scenarios. In the first, the patient will have both responsibilities. Patients would start to actually consider whether the extra $5,000 they would have to pay to go to Provider B for their cholecystectomy would be worth it as opposed to just going to Provider A. Is Provider B’s quality actually that much better to make it worth the extra $5,000? If not, patients will probably choose Provider A. And what happens when patients all start being unwilling to pay unjustifiably high prices? Provider B will either have to lower prices (goodbye crazy price variations!) or continue to deal with a large number of unused operating room hours. Patients win because they get better value, and high-value providers win because they get patients. In this situation, the decreased expenditures on healthcare are taken from the low-value providers. Who would argue against that? In this case, even the “I’m better than the average physician” belief that 100% of physicians have (statistically impossible as it may be) will help to decrease healthcare expenditures.

This pairing of both responsibilities in patients is actually happening, by the way. Why do you think insurers are trying out reference pricing, where they just commit to put a set dollar amount toward a given procedure and have the patient cover the difference if they choose a provider who charges more than that? And what about tiered plans, where patients choosing to go to the more expensive hospitals (the ones in the higher tiers of the insurance plans) have to pay a larger copay? And what about high-deductible plans for services below the deductible? These are all doing the exact same thing but in different ways: making the person who chooses where to get care the same person who bears the financial consequences of the decision. And providers with higher value are being rewarded with increased market share (volume).

In the second scenario, the insurer will have both of those responsibilities. It’ll still bear the financial consequences, of course, but now it’ll also be the one that tells patients exactly where to go for care. Patients wouldn’t like this, of course, but what would happen? Insurers would send every patient to the cheapest provider that meets minimum quality standards. Unlikely to ever happen? For run-of-the-mill procedures, probably it won’t ever happen. But for incredibly expensive one-time procedures, it already has. I heard a story about an insurer that did this with liver transplants (which, all told, is estimated to cost over $500,000 dollars). The insurer asked around to all the reputable local hospitals and got the cheapest bid for each patient. Then they sent each patient to the lowest-bidding hospital. The insurer saved a bundle. And the hospitals that could offer lower prices (possibly because they had lower costs somehow) were rewarded with volume. Ah, that whole reward value with volume thing again. It’s beautiful.

One final real-world example. ACOs. So far, one major way they’ve saved money is by sending patients to cheaper specialists. Let’s apply the principles we’ve just talked about to understand what’s going on. The referring provider is generally the party charged with making the decision of where the patient will go for a specialist visit. (The doctor says, “You need a specialist to look at this. Here’s the phone number for a good doctor, so go see her.” The patient says, “Okay, Doc, whatever you say. I’ll go see her.”). And when the referring provider is getting a bonus for keeping overall costs down, he now also bears the financial consequence of sending patients to expensive specialists because it’ll cost him his bonus. Now that you understand the principle of those two responsibilities needing to be invested in the same party, the world starts to make sense; you start to actually be able to predict whether something will work or not.

So now when you hear people complaining about our “horrendously evil system of third-party payment,” you’ll know that it’s not intrinsically a bad thing. It’s only bad when it results in a separation of those two responsibilities, the decision-of-where-to-seek-care responsibility and the financial responsibility.