Don't Be Fooled: Patients Can Shop For Healthcare

By Yevgeniy Feyman of Forbes. Excerpt:

"This de minimis spending characterization is somewhat misleading, and another important result from the study explains why. It turns out that, at the upper end, an estimated 43 percent of the $524 billion ($225.32 billion) spent on health care through employer-sponsored insurance went towards shoppable services. Therefore, $187.62 billion ($225.32 billion minus $37.7 billion) was spent on shoppable services that were not out-of-pocket. This is both a problem, and an opportunity.

For starters, we don’t know what share of the $187 billion insurers spent on shoppable services involved the patient’s own money on the line. Even if your insurer pays $500 for an MRI – whether transparency is useful depends on how much of that $500 you are on the hook for. A patient with a $25 copay is less incentivized to shop around than a patient with 10 or 20 percent coinsurance.

This underscores another important, somewhat ignored point. It’s not just how much you spend out-of-pocket – it’s about the threat of out-of-pocket spending. Let’s take that $500 MRI. If your insurer were to set a reference-price at $500 – the maximum they’re willing to pay for an MRI – and required you to pay anything above that, you might find an MRI for $400. Or $453.78. Or $500. You wouldn’t be shelling out any money in any of those cases, but transparency tools were nevertheless a necessity to help you find those prices in a market where some MRIs exceeded the $500 reference price
In a sense, with better benefit design, less out-of-pocket spending might very well mean that transparency is working as intended.

It doesn’t stop there. Price and quality transparency could (and should) be used by insurers to improve benefit design, pushing patients to the lower-cost, higher-value providers. Smaller insurers may find it easier to negotiate better deals with providers – with the ability to back their position with objective, vetted data on quality and price. Austin Frakt and I discussed precisely these scenarios in a recent piece on the potential harms of the Supreme Court’s latest ruling on Vermont’s all-payer claims database.

To understand how improved benefit designs might work in practice, it’s worth considering the UK’s experience directing patients to higher-quality hospitals. The UK has long been known for its single-payer system that asks for little to no money from the patient at the point of service. Reforms in 2006 required patients to receive a choice of five different hospitals, along with some information about patient experience and quality, prior to treatment. An analysis of the policy by economists Martin Gaynor, Rodrigo Moreno-Serrena, and Carol Propper, variously from Carnegie Mellon and Imperial College, found that patients overwhelmingly responded to the changes, noting that “the share of patients bypassing their nearest hospital increased for better hospitals while it clearly decreased for worse hospitals.”

If patients in the UK responded to transparency efforts, why wouldn’t Americans?
Those claiming that health care transparency won’t be a panacea are certainly correct – there’s much more to fix in the health care system than the lack of price and quality information. And given the status quo of blunt benefit designs, the benefits of greater transparency may be limited. But transparency initiatives can and should help improve insurance benefit designs, directing patients to more cost-effective providers. This can happen with or without patients spending their own money."