» 3 Reasons Price Transparency Tools Don’t Reduce Health Care Spending
April 7, 2021
Much has been made of the potential for price transparency tools in health care to solve the high costs of health care that affect Americans. Washington and state legislatures have demonstrated a belief in the potential of these tools and the industry expects many ripple effects from the price transparency rule that became effective the first of this year.
Despite the theory and beliefs, how have price transparency tools actually affected health care spending in the real world?
Researchers out of NYU and Harvard asked this question by looking at the effect of price transparency tools on health care spending and had some interesting findings that should interest employers.
The underlying assumption here is that in order for patients to be better consumers of healthcare, they need to know in advance how much they’ll pay for a visit, test, or procedure.
Alex Azar, the secretary of health and human services during the Trump administration, expressed this sentiment when he said “a patient-centered system that puts you in control and provides the affordability you need, the options and control you want, and the quality you deserve. Providing patients with clear, accessible information about the price of their care is a vital piece of delivering on that vision.”
The Research on Provider Price Tools and Spending
The researchers (Sunita Desai of NYU Grossman School of Medicine, Sonali Shambhu of HealthCore, and Ateev Mehrotra of Harvard Medical School) looked at tools and spending in New Hampshire, a state with one of the more advanced websites on provider prices.
Their overall takeaway is that while price transparency tools let consumers see prices upfront, this practice does not lead to lower spending or increased use of low-cost providers. According to the paper, “Our findings emphasize that awareness of prices does not simply translate into price shopping and lower spending.”
The researchers used Google Ads to increase traffic to New Hampshire’s public website that displays provider costs. This resulted in a much higher degree of awareness and visibility for healthcare prices, and even non-paid traffic increased, suggesting an overall increase in awareness of the tool.
However, increased awareness did not result in price shopping or lower spending.
Again, the researchers here provide a word of caution as “our findings provide a cautionary note for those who believe that the availability of price information will reduce patients’ spending.”
What Employers Can Do with These Findings on Price Transparency and Spending
Employers are looking for every opportunity to better manage health care spending. For some organizations, health care costs can be one of the top two or three line-item expenses across the company. So finding solutions that create real savings, while minimizing the impact on employees (or better yet, improving them!) are top of mind for most finance and HR leaders today.
With the finding that price tools don’t necessarily lead to reduced spending, what can employers take away?
First, the underlying assumption requires that employees have the ability to translate price awareness to shopping for care. If as an employee, your benefits and health plan don’t include some ability to implement this information, you won’t be able to use it in any meaningful way that leads to lower spending. It’s critical that employers reduce the barriers to using price transparency tools.
Second, most health and benefits plans don’t create meaningful incentives for employees to choose lower-priced care, even among those with high-deductible health plans ¹, ². In addition to offering price transparency tools, employers can introduce multiple-tier networks that drive employees to high-quality, low-cost providers by partnering with a local medical group or health system.
Finally, health care spending is kind of weird. Some consumers put less emphasis on health care prices compared to other factors when deciding where to get care or which doctor to see. Think of the proverbial “I want the best!” statement from a character in a movie or TV show when discussing their loved one’s health care. So we do see that health care shopping and purchasing can be highly inelastic when it comes to costs.
Despite the lack of direct impact on spending, there are indirect benefits to giving employees access to price transparency tools
First, employees may be more aware of their out-of-pocket expenses and thus better able to plan accordingly. In a country where most Americans can struggle to meet even $500 surprise expenses, this is a benefit to employees, albeit not exactly what we had expected as a result of these rules and policies.
Second, this data may be used in provider and payer negotiations to lead to lower and more consistent prices through supply-side dynamics. These benefits will help employers with their spending but the effects will be realized over a longer time than just a year.
If you’re an employer looking to address high costs of health care for your employees, both to improve your bottom line and to improve your employees’ quality of life, price transparency tools are still a critical component of your overall benefits offering. By combining price transparency with incentives in your network, you can effectively improve your employees’ health care outcomes and reduce overall spending.