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Swim at Your Own Risk: Why Price Shopping Hasn’t Worked in Health Care

03/11/19

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Tom Robertson, Executive Director, Vizient Research Institute

Did you ever dip your toes into a swimming pool and recoil because the water felt like it was 47 degrees? So you settled into a lounge chair beneath an umbrella, determined not to go into the pool in spite of your pleading children or some wise guy urging you to “come on in, the water’s fine.” You held out as long as you could but eventually you couldn’t avoid it any longer so you considered the merits of easing your way in versus jumping in and getting the breath knocked out of you all at once. This summer ritual is a lot like accessing the health care system, except health care has no shallow end.

The emergence of high deductible health plans (HDHPs) was intended to create incentives for patients to compare prices before accessing services. Common intuition and classic economic theory expected patients to engage in price shopping for elective services. It came as a surprise to employers, insurers and business school professors when readily available online price transparency tools went virtually unused by patients. Numerous studies of consumer behavior consistently find that the overwhelming majority of patients – roughly 90 percent – fail to access comparable pricing information before receiving routine elective services.

By contrast, 80 percent of consumers buying computers, tablets, electronics and major appliances conduct online price comparisons before making a purchase in a physical location. It’s interesting to note that the prices of computers, electronics or appliances are quite similar to the prices of CT or MRI scans, yet consumer behavior is as different as night and day. So why has price shopping not gained traction in health care?

Health care is not a normal economic good. More is not better than less for the typical consumer. An old friend and colleague put it aptly: “Who wants to buy health care? Nobody. It’s no fun, it leads to bad news, and it’s inconvenient. We don’t assume people will buy clouds of mosquitoes in their bedroom at night so why should we assume folks want to buy health care?” Not unlike the option of sitting beneath an umbrella outside a frigid swimming pool, most consumers would rather avoid the health care system rather than shop in it.

More importantly, however, health care prices are now too big to matter. Among households earning between $55,000 and $91,000 per year, the median balance of liquid assets is $4,500. A typical family earning less than $55,000 per year has less than $2,000 in the bank. If they have a $3,000 deductible and a $5,000 limit on out-of-pocket expenses, any significant encounter with the health care system would wipe them out. It’s very difficult to walk into a hospital and come away with a bill for less than several thousand dollars. For the average consumer, health care prices are out of reach, making comparison shopping an academic exercise.

Another factor working against price elasticity is the concentration of health care spending among a small subset of seriously ill patients. Approximately 50 percent of health spending is incurred by only 5 percent of the population. That patient cohort regularly exceeds their insurance deductible and the costs of their episodes far surpass any reasonable upper limit on out-of-pocket responsibility. Said simply, people avoid the health care system whenever they can, but once engaged, the costs quickly overwhelm any practical window within which price elasticity would be relevant.

High deductibles cause patients to avoid health care, not to shop … and they avoid not only unnecessary services but essential services like mammograms, colonoscopies or insulin injections. Another unintended consequence of the push for price transparency is the potential disruption in continuity of care. Our own research has shown that complex or chronically ill patients who receive the preponderance of their care from a single health system spend considerably less than similar patients with fragmented episodes of care. Price shopping, were it to occur, might undermine continuity, in the process generating incremental costs that would offset at least some, and perhaps all of the hoped-for savings.

Recently, I was walking near a lake that had formed when an old strip mine filled with water. The nature of the geology meant that the water was hundreds of feet deep just yards from the shore. Nailed to an old wooden post was a sign that read “Swim at your own risk.” Accessing the health care system is like swimming in a strip mine. As soon as you enter the water, you are hopelessly over your head. It was completely unexpected when price shopping failed to take hold in health care, even after the introduction of high deductibles. In retrospect, perhaps it shouldn’t have been a surprise.

About the author and the Vizient Research Institute™. As executive director of the Vizient Research Institute, Tom Robertson and his team have conducted strategic research on clinical enterprise challenges for 20 years. The groundbreaking work at the Vizient Research Institute drives exceptional member value using a systematic, integrated approach. The investigations quickly uncover practical, tested results that lead to measurable improvement in clinical and economic performance.

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