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Why Price Transparency Still Matters

By Adam Bernstein, MD | June 30, 2016 | Rally Staff

When the prestigious Journal of the American Medical Association (JAMA) recently published an article on price transparency, it caused quite a jolt. The report concluded that a price transparency tool available to more than 20 million people in the US did not lower health care spending, and was only used by a small percentage of people.  

“The limits of this (pricing) data are becoming increasingly clear,” reported the The New York Times. “Even when people have access to the newly available information, they may not use it. And when they do, they may not rely on the insight.”

While the JAMA study raises some important points, we at Rally Health still firmly believe that price transparency tools like Rally Connect will be a key component in reducing overall health care costs, in addition to helping people better navigate the health care system.

To understand why we think so, it’s first necessary to look at what the JAMA report actually studied and what its conclusions were.

The report, “Association Between Availability of a Price Transparency Tool and Outpatient Spending,” looked at two companies with a total of about 150,000 employees who had access to a price transparency tool as part of their benefits package, and a control group of nearly 300,000 people from other companies who did not.

After one year, the study found no appreciable difference in health care spending between the two groups. Furthermore, only about 10 percent of employees who had access to a price transparency tool actually used it.

Why might this be? One year may not be enough time to see the long-term effectiveness of price transparency. A typical person may go several years without seeking health care, and then have a medical issue that causes him or her to seek care several times in a specific period. Savings from a price transparency tool could add up quite a bit in such a case.

There are also a number of reasons why only 10 percent of users may have used the tool, as pointed out by the study authors and in an accompanying JAMA editorial by Dr. Kevin Volpp:

  • Users (patients) may simply have been unaware of the tool’s existence, perhaps because it was inadequately promoted by their employer. As Karl Ulfers, Rally’s VP of Product points out, “Utilization of standalone tools is always very low. The key is to integrate. It’s hard to name another industry, or even company, where you go to one place to find a product, then another to price it.”
  • Users may have been given no financial reward or incentive to use the tool.
  • Users who have a long-standing relationship with a particular physician may be reluctant to switch doctors  or health systems just because a tool on their computer tells them they can get the same service for less money elsewhere.
  • Many users feel unqualified to make important medical decisions on their own, like choosing a provider, and may require more education before they will act with confidence.

Notably, there is a long-standing belief among consumers that paying more means getting better quality. This is often the case when it comes to consumer products like TVs or peanut butter, and some believe it’s true for health care providers and services as well.

In addition, it has long been hoped that simply presenting consumers with more and better information would lead to more rational, more efficient, and healthier behavior. We saw this in the movements to put information about health risks on cigarette packages, or to put calorie counts on menus. The idea was that, given access to that information, consumers would choose to quit smoking or eat more healthy foods.

But the results were never quite that simple, because consumer behavior is not always rational. In fact, the entire behavioral economics field is based on the idea that consumers sometimes behave irrationally, even if it means acting contrary to their own interests. With smoking cessation efforts, which have seen some success, results were driven by information campaigns, changes in social norms, and higher taxes, among other things.

“Price transparency tools are not likely the panacea that many have hoped for with respect to controlling health care costs,” concluded Dr. Volpp. “Health plans could create incentives to user price transparency tools as part of benefit design, but given the result [of this study] and the related considerations, health plans might exercise caution because doing so may be unlikely to reduce health care spending.”

I agree with Dr. Volpp’s conclusion that price transparency tools alone are not a panacea. In other words, they cannot by themselves fix the problem of high health care spending.

This should come as no surprise to those involved in patient engagement efforts. At Rally, we believe in a holistic approach to health and wellness. There is simply no magic bullet to making people healthier, or to lowering skyrocketing health costs.

Information alone — that is, providing patients with the prices of services — does not motivate all people all the time. For some, the motivation comes from an emotion, or social pressures and norms, or prior experiences. For others, it is deference to those with more knowledge, such as a physician or other health provider. To engage patients and understand their motivations, we must understand other components: family situation, employment, past medical history, stressors, and so on.

At Rally, we believe price transparency tools are an essential part of an employer’s benefits package for several reasons:

  • Many states are already mandating transparency solutions in an effort to bring down health costs. Ulfers points out that in the past five or six years, the financial burden for medical costs has shifted to the individual — premiums have gone up 24 percent and out-of-pocket expenses have risen a whopping 67 percent, while wages have increased only 10 percent, on average. Recognizing this trend is part of the reason states are beginning to mandate cost transparency tools.   
  • It should almost certainly take longer than a single year to see the financial benefits of letting consumers shop around for medical services.
  • Price transparency tools may need to be integrated into some kind of comprehensive incentive or rewards program to encourage consumers to break their habits and shop around for better care.

We should also keep in mind that transparency tools have other benefits besides just potential savings: for example, they may help users find providers who are in their network, work in a certain geographic area, or speak a particular language. They may also help users track medical expenses toward a deductible and help manage out-of-pocket costs.

In the end, I see the low utilization of a price transparency tool in the JAMA study as reason for a broader discussion of how to engage patients, rather than an indictment of the tools themselves. Patients will not use a tool they don’t know is there, or which they may have no incentive to use. Price transparency must be integrated into an overall engagement effort that works to understand the complexities of user psychology. In time, price transparency tools should prove to be a key component in bringing health care costs down, and helping people make better, more informed decisions.

Dr. Adam Bernstein is Chief Medical Officer for Rally Health. Previously he was Director of Research at the Wellness Institute of the Cleveland Clinic.

Adam Bernstein, MD
Rally Staff