Trouble with Transparency in Health Pricing

A high-profile study suggests that medical price-shopping tools don't cut health-care costs. But they still have real -- and growing -- value for companies, many experts say.

Tuesday, July 5, 2016
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Think that giving employees access to data about medical pricing will cut your company's health-care bill? Don't count on it, experts say.

Web-based price-transparency tools let employees compare cost and quality measures for medical procedures and providers. Offered by health plans and vendors such as Castlight Health, Truven Health Analytics and Health Advocate, the services have real and growing value to employers, experts say. But don't expect an immediate return on your investment -- at least for now.

Why? The most basic reason is that few employees use them. A 2015 Kaiser Foundation poll found only 3 percent of American adults had used hospital or doctor pricing information in the past year. A staggering 57 percent of insured Americans don't even know that doctors charge different prices, according to another survey.

"If you build it will they come? The answer is no," unless employers make a real effort to encourage use of the online tools, says Marcia Otto, vice president of pricing and transparency applications at Health Advocate. "Education is one of the biggest hurdles."

The latest evidence of this is a study published last month in the Journal of the American Medical Association. It found that only about 10 percent of 149,000 employees who had access to an online price-transparency tool used it.

Worse yet: Workers who had access to the tool spent more, not less, than a control group of 296,000 employees who didn't. After adjusting for differences in demographics and health conditions, those with access to the pricing tool each on average spent $59 more over a year.

But things aren't as gloomy as this result suggests, say many experts. For one thing, some other studies suggest price-transparency tools do save money in certain circumstances.  One example: A 2014 study, also published in JAMA, found a price-transparency tool cut medical costs for laboratory work and imaging by up to 14 percent.

Also, medical pricing services will become more useful as consumers adapt, says Stephen Parente, a professor of health finance at the University of Minnesota's Carlson School of Management. "These tools still very new -- people are just getting used to them," he says.

Part of that adjustment is that people are not accustomed to shopping for medical care. Though new web-based tools allow some comparisons of quality, most consumers still assume -- incorrectly -- that a higher price means better care, Parente and others say. And they're not willing to take chances with their health.

A related issue is that apart from straightforward services such as a CAT scan, "not a lot of things are commodities" that can easily be compared on price, says Al Lewis, a Boston-area-based health insurance consultant.

"The number of actual 'shoppable' things is very low," Lewis says. "If I'm having my knee replaced, there's no way I'm price-shopping for that."

Many employees also see little advantage in price-shopping for major procedures that exceed their deductibles, note the authors of the recent JAMA study. Led by Harvard Medical School research fellow Sunita Desai, the authors say employees who used the tool mostly compared relatively expensive procedures. That means they had little incentive to save money.

But that will change as rising costs drive more companies to shift to high-deductible plans, experts say. That trend provides a key reason to offer a price-transparency tool in the first place, Otto says. "Employees are saying 'Give us tools' " to help manage the greater financial responsibility they bear under those plans, she says.

Experts say pricing tools also are a critical part of a promising trend called reference pricing. By setting standard maximum reimbursements for major procedures, plan sponsors can provide a powerful incentive for employees to consider price in shopping for care.

Along with creating a greater financial incentive, education is critical to making the most of health pricing services, experts agree. Research shows that when employers "make a very thoughtful education effort, it can make a difference," Parente says.

That means getting as many people to live workshops as possible, and complementing those sessions with messages delivered through as many other channels as possible: email, webinars and posters in the lunchroom.

"You're making a sale," Parente says. "You need to have multiple points of contact -- and you may even have to have to say it three times before they get it."

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Lewis agrees that education is key -- particularly if it provides employees information that helps them avoid unnecessary procedures. Lewis also is CEO of Quizzify, a startup that helps companies educate employees about prudent use of medical care.

"Instead of trying to shave a little money off here and there" on procedures, he says, employees might be better off asking themselves: "Should I be getting them in the first place?"

To further encourage use, some pricing-tool vendors -- including Medical Advocate Program, Compass Professional Health Services and Health Advocate -- offer a "high-touch" option with live help to make pricing tools more appealing and accessible.

Employees can call a Health Advocate counselor, for example, to discuss options whether they've consulted the online tool or not. If appropriate, "we steer the conversation to talk about price," Otto says.

Apart from direct benefits for employers, such services allow companies to help with the effort to bring down health costs for everyone. Price-transparency tools " are a necessary step to evolve this market," says Parente. "If these services aren't paid for, they won't be able to advance to the next level."

Lewis agrees, pointing to one specific effect of transparency tools: they've exposed cases where prices were out of line.

"This is a case where I think [price-transparency tool providers] actually are understating the impact" of their products, he says. Revealing prices to the public has caused "a certain amount of embarrassment for providers," bringing down some prices in extreme cases.

Someday, price-transparency services may eventually lose traction in the marketplace because they've done their job, Lewis says. "Ironically, by making pricing more efficient, their advantage will fade -- and they'll be victims of their own success."

Judging from the slow pace of progress in the battle against escalating medical costs, though, employers can count on price-transparency services for the foreseeable future.

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