POLICY/INDUSTRY: Posting prices is all we need--yeah, right. Paul Ginsburg on transparency

Paul Ginsburg from HSC doesn't quite have Uwe's ability to damn but stay "just this side ofthe line". On the other hand he has a solid base in very sensible research. When they start talking about price transparency someone in Congress had the good sense to drag him in. This was Ginsburg's testimony about Consumer Price Shopping in Health Care. I've abridged it and commented a little:

Unfortunately, much of the recent policy discussion about price transparency downplays the complexity of decisions about medical care and the dependence of consumers on physicians for guidance about what services are appropriate. It also ignores the role of managed care plans as agents for consumers and purchasers in shopping for lower prices. Well-intentioned but ill-conceived policies to force extensive disclosure of contracts between managed care plans and providers may backfire by leading to higher prices.

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ut we need to be realistic about the magnitudes of potential gains from more effective shopping by consumers. For one thing, a large portion of medical care may be beyond the reach of patient financial incentives. Most patients who are hospitalized will not be subject to the financial incentives of either a consumer-driven health plan or a more traditional plan with extensive patient cost sharing. They will have exceeded their annual deductible and often the maximum on out-of-pocket spending. Recall that in any year, 10 percent of people account for 70 percent of health spending, and most of them will not be subject to financial incentives to economize.

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In addition to those with the largest expenses not being subject to financial incentives, much care does not lend itself to effective shopping. Many patients' health care needs are too urgent to price shop. Some illnesses are so complex that significant diagnostic resources are needed before determining treatment alternatives. By this time, the patient is unlikely to consider shopping for a different provider.

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So there is a solution -- THCB readers who know that I'm an Enthoven disciple will not be too surprised as to what it is.

Some of these constraints could be addressed by consumers' committing themselves, either formally or informally, to providers. Many consumers have chosen a primary care physician as their initial point of contact for medical problems that may arise. Patients served by a multi-specialty group practice informally commit themselves to this group of specialists-and the hospitals that they practice in-as well. So shopping has been done in advance and can be applied to new medical problems that require urgent care. This is a key concept behind the high-performance networks that are being developed by some large insurers.

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Even when services are good candidates for shopping by consumers, comparison of prices is not easy. Much treatment is customized. For example, an elective rhinoplasty, more commonly known as a nose reconstruction, is not a commodity, and a plastic surgeon cannot provide an estimate without examining the patient. Often a medical treatment involves an uncertain number of services by a number of separate providers, but few bundled prices are available in the marketplace today. As mentioned above, limitations in useful comparative quality data make patients reluctant to choose a provider based on lower price.

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But the Cato guys tell us that LASIK surgery is cheap and got cheaper because of consumer facing price competition. So what about those self-pay markets that we've herd so much about? Turns out that's not quite so clean either....

LASIK has the greatest potential for effective price shopping because it is elective, non-urgent, and consumers can get somewhat useful price information over the telephone. Prices have indeed fallen over time. But consumer protection problems have tarnished this market, with both the Federal Trade Commission and some state attorneys general intervening to curb deceptive advertising and poorly communicated bundling practices. Many of us have seen LASIK advertisements for prices of $299 per eye, but in fact only a tiny proportion of consumers seeking the LASIK procedure meet the clinical qualifications for those prices. Indeed, only 3 percent of LASIK procedures cost less than $1,000 per eye, and the average price is about $2,000. I can only wonder about the extent to which policy advocates have themselves been deceived by these advertisements and inadvertently perceived a sharper decline in prices than has been the case.

For the other procedures that we studied, we found little evidence of consumer price shopping. For dental crowns and IVF services, many consumers are unwilling to shop because they perceive an urgent need for the procedure, and other consumers are discouraged from shopping by the time and expense of visiting multiple providers to get estimates. In cosmetic surgery, a limited amount of shopping does occur, facilitated by free screening exams offered by some surgeons. However, quality rather than price is the key concern to most consumers in this market; in the absence of reliable quality information, most consumers rely on word-of-mouth recommendation as a proxy for quality, instead of shopping on price.

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So it turns out you need a sponsor

Much of the policy discussion about price transparency has neglected the important role that insurers play as agents for consumers and purchasers of health insurance in obtaining favorable prices from providers. Even though managed care plans have lost some clout in negotiating with providers in recent years, they still obtain sharply discounted prices from contracted providers. Indeed, in my experience as a consumer, I often find that the discounts obtained for the PPO network for routine physician, laboratory and imaging services are worth more to me than the payments by the insurer.

Insurers are in a strong position to further support their enrollees who have significant financial incentives, especially those in consumer-driven products. Insurers have the ability to analyze complex data and present it to consumers as simple choices. For example, they can analyze data on costs and quality of care in a specialty and then offer their enrollees an incentive to choose providers in the high-performance network. Insurers also have the potential to innovate in benefit design to further support effective shopping by consumers, such as increasing cost sharing for services that are more discretionary and reducing cost sharing for services that research shows are highly effective.

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Conclusion:  The need for consumers to compare prices of providers and treatment alternatives   is increasing and has the potential to improve the value equation in health   care. But we need to be realistic about the magnitude of the potential for improvement from making consumers more effective shoppers for health care. Whatever the  gains from increased shopping activity, rising health care costs will, nevertheless, price more consumers out of the market for health insurance and burden governments  struggling to pay for health care from a revenue base that is not growing as   fast as their financing commitment. For those who have health insurance, their health plan will be a key agent in facilitating their obtaining better value. Government needs to take care not to interfere with this relationship and should   focus instead on the needs of those without insurance

And what he doesn't say but we all know is that if you regulate the way the plans behave effectively (and heaven knows there's enough written about this that I don't have to tell you how) they'll start competing amongst consumers about the right things...