How Healthcare Price Transparency Can Cuts Costs, Improve Value

September 04, 2019 - Market-wide healthcare price transparency is a key way to increase the value of healthcare spending, according to a new study from the Harvard T. H. Chan School of Public Health.

Published in the September 2019 edition of Health Affairs, the study examined healthcare price transparency efforts in Massachusetts, which makes data available on actual prices negotiated between payers and providers.

Using a unique data set from a state agency that contains prices by procedure, payer, and provider for 291 predominantly outpatient medical services, researchers found that Massachusetts could save between 9.0 and 12.8 percent if policymakers and payers use the price information to steer patients to lower-price providers or set ceiling prices for services.

But the findings suggest that the state could see more value from steering patients to lower-price providers than price ceilings, researchers stated.

“The simulations suggested greater potential savings from steering than from price ceilings—because steering would reallocate services to providers with prices along the price distribution, whereas price ceilings would increase the number of providers paid the seventy-fifth-percentile price,” they wrote in the study.

Patient steering may be the next step for healthcare price transparency efforts, the researchers indicated.

Healthcare price transparency efforts are on the rise. States are increasingly enacting laws that require providers to disclose their prices or submit them to a state-run database. The federal government also recently started to require hospitals to post their chargemaster prices online and intends to expand those requirements to negotiated rates.

The healthcare price transparency laws and regulations all aim to reduce costs of medical services, which are slated to increase by 5.5 percent annually until 2027, while bringing value to healthcare consumers. Policymakers believe greater healthcare price transparency will empower patients to select low-cost, high-quality providers, generating greater value.

However, simply providing pricing information directly to consumers through price transparency tools has not led to changes in consumer behavior that will result in higher-value care, the Harvard researchers stated.

An earlier study from lead author and assistant professor of health economics and policy Anna D. Sinaiko found that consumers rarely use price transparency tools like public report cards with quality and cost information on physician, physician groups, and hospital providers. Furthermore, the price transparency tools have not been found to influence consumer choices.

A more recent study confirmed Sinaiko’s earlier findings, showing consumers either forgot to use price transparency tools before seeking care or did not see any use because they were already beyond their deductible or saw consistent copayments at their doctor’s office.

The lack of changes in consumer behavior following the implementation of various price transparency tools calls into question the value of such efforts. Instead, implementing policies like patient steering, which is administered on the state or payer level, could add value to healthcare price transparency efforts, suggested Sinaiko and co-authors Pragya Kakani, student in the Harvard PhD program in health policy, and Meredith B. Rosenthal, C. Boyden Gray Professor of Health Economics and Policy.

“New products and interventions are required to improve value in health care choices. The development of these tools and new incentive programs requires investment, and our findings can be used to assess the maximum returns from such efforts,” they wrote.

Sinaiko et al. advised industry leaders to consider reference-based pricing, which requires patients to cover any costs above a set reimbursement rate for a specific service. Leaders should also consider tiered or narrow networks that allow the payer to sort providers based on price and quality, they recommended.

Price ceilings would also work in certain situations, they explained.

“If steering is onerous for some services because the geographic distribution of services is not comprehensive, it could be disruptive to patient care. Steering could also be infeasible in some cases, such as for ambulance services. Then imposing price ceilings may be preferable,” the study stated.

Researchers concluded that the findings “provide a road map for ways that consumers and purchasers can save money not only through choice of providers but also through choice of insurers.”