NCPA - National Center for Policy Analysis

Transparency Tools Work - But Require Appropriate Incentives

June 22, 2016

In the NCPA's Healthblog, Devon Herrick, argues that patients will use transparency tools if given the appropriate training -- and incentives -- by health plans:

A recent New York Times article by Reed Abelson blames the slow adoption of online transparency tools on "health care's complexity."  Abelson argues… "It is impossible to know, for example, whether a dermatologist who costs twice as much as another can more successfully diagnose skin cancer." The article briefly mentions the case study of two large employers who found online transparency tools did not reduce consumer spending.

Abelson conveys a rather disparaging message. According to Abelson, transparency tools are mostly ineffective at reducing health care spending because patients aren't using them. Abelson interviewed Mitch Rothschild, executive chairman of the transparency firm, Vitals. I've met Rothschild and co-presented with him on a panel discussion at a conference. Rothschild observed, "You can't save money if people aren't shopping." That's a good point. How can employers encourage workers to use the tools? It requires the appropriate application of training - and incentives.

I'm reminded of an experiment by the California Public Employee Retiree System (CalPERS) conducted by the insurer, WellPoint. Charges for hip and knee replacements vary considerable from one hospital to the next for no apparent reason — other than the fact that most patients have little reason to compare prices. A surgery that costs $70,000 at one hospital may only cost half that at another hospital. California health insurer WellPoint (now Anthem) observed that hospital charges for joint replacement ranged from $15,000 to $110,000 with little difference in outcomes between high-cost and low-cost surgeries. Although prices varied among hospitals, dozens of California hospitals charge less than $30,000 with no discernible reduction in quality.

CalPERS and WellPoint designed an experiment to reward beneficiaries who patronized high-quality, lower cost facilities. Enrollees were encouraged to go to the lower-priced hospitals through reduced cost-sharing. This was not a restrictive network; patients could go anywhere. But patients were responsible for all charges in excess of the $30,000 reference price for a hip or knee replacement. In addition, enrollees faced a standard coinsurance percentage of 20 percent of the cost of care (limited to $3,000 annually). This meant that choosing a more expensive hospital that charged $40,000 would subject a patient to cost-sharing of $13,000 ($10,000+$3,000). By contrast, selecting a facility that only charged the reference price of $30,000 would result in cost-sharing of $3,000.

The results of this experiment were better than anyone could have anticipated. CalPERS enrollees who went to the 46 reference price hospitals (those charging less than $30,000) are represented by the solid red bars in the figure. The solid blue bars represents the additional cost for CalPERS' enrollees who chose a hospital other than one of the 46 value hospitals...

Read entire article here...


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