A study of healthcare spending included price transparency--or did it?

This week I am going to discuss the 1992 movie, "A League of Their Own" and my recent experience replacing the battery and power cord for my laptop, and how both topics relate to the lack of price transparency in healthcare finance. 

But let's first take a short stop at an extensive study released last week regarding the spending habits of enrollees in high-deductible health plans. Berkeley and Harvard economists Zarek Brot-Goldberg, Amitabh Chandra, Benjamin Handel and Jonathan Kolstad studied a large company that moved its employees from a health plan with no deductible to one with a $3,750 deductible. That deductible was then covered with a health savings account (HSA) into which the employer contributed $3,750. In other words, there was no net effect on employees' out-of-pocket costs, but they would have to pony up some HSA money to cover their care.

"Consumers were provided a comprehensive price shopping tool that allowed them to search for doctors providing particular services by price as well as other features (e.g., location). Whether or not price shopping actually occurs is an empirical question that depends upon a range of factors, including consumers' provider preferences, information about prices, and search effort," according to the study. 

It turns out, apparently, not much of an effort was put into using those pricing tools--or into answering that empirical question.

Per-patient spending dropped by 15 percent in the first year the new plan was in effect. But, according researchers, that was driven by an across-the-board drop in the use of services, including preventive care. Apparently, enrollees responded dramatically "to spot prices at time of care," the study concluded, which led to a 42 percent drop in spending while they remained under the deductible. Sicker patients were more likely to pare back on healthcare services than their healthier colleagues. Once they exceeded their deductible, however, they tended to start spending again.

"I am a little bit surprised at just how poorly patients were able to do when looking at very similar products, like MRI scans, and with a shopping tool," Kolstad told Vox

Not much effort was made to find out the reason why. The most definitive assertion in the entire study was "the fact that consumers economize on care that is still free could suggest limited consumer information on prices when making medical consumption decisions (e.g., preventive services that are in fact free). Another explanation for why consumers reduce preventive services is that consumption of these services may be bundled together with more expensive services during visits to providers: If consumers reduce visits overall they are likely to reduce consumption of preventive services."

Consider Tom Hanks' famous pronouncement in the 1992 movie "A League of Their Own" after one of the players he manages breaks down in tears. Just imagine him saying with the same exasperated anger that, "there's no price transparency in healthcare!" the same way he said, "there's no crying in baseball!" 

Yes, a price-shopping tool was included for this study. It was a lovely gesture--but not much more than that. Decades of paternalistic attitudes by doctors toward their patients, the emotional freight that accompanies a visit to a provider and a woeful lack of marketing and education about how to use pricing tools means most consumers won't use them. That these economists assumed that they would was, in my opinion, naive.

There is no option to shop around for healthcare. Where there is some pricing data available for the typical consumer--as was the case for this study--it almost always lacks fundamental specifics, such as an exact total for all the services being rendered. Those study subjects may have known how much an office visit or image would cost, but there is no way they would have known anything about what their bill would have resembled if they were admitted to a hospital. 

Take that lack of familiarity with price transparency I mentioned before and add a foreboding fear of receiving a surprise bill, and there is no doubt many of the "sicker" employees in this health plan decided they were actually feeling pretty good.

That those same patients skipped preventive care--and may be driving up costs down the line--is perhaps overthought. The study noted that mammogram screenings decreased 8.9 percent after the switch to the new plan, but this may have been due to the fact many patients, the authors speculated, mistakenly thought this free service would cost them money.

In other words, it's another instance of a lack of price transparency in a study that assured it was present.

That brings me to my laptop. After three years of use, the battery needed to be replaced. The power cord also stopped working. It would have cost a combined $230 to replace both at the retail store, not counting a minimum hour-plus wait time for the service.

Because there is thorough price transparency in the world of computer peripherals, I was able to quickly locate a replacement power cord and battery online that were delivered to my home, complete with a set of specialized screwdrivers for installing the latter. I had price information to the penny as to what it would cost to acquire these devices, and consumer reviews to tell me whether it was risky to purchase a generic version.

After spending a few minutes finding videotaped instructions on how to replace the battery, it took about a half-hour to finish the job. Total cost, including the new power cord: Less than $100. Nearly as impressive as the money savings is the time I didn't expend performing this errand.

Just a decade or so ago, such shopping and work would have been virtually impossible to perform on my own.

Of course, not everyone wants to take the risk that they may damage their computer, so they will continue to pay extra for the professional servicing. That's a perfectly rational choice, and since it's being made in the presence of so much empirical information, it is an informed choice as well. 

Will the dynamics of shopping for healthcare services change like this in my lifetime? Possibly, but if that's occurring, it is doing so at an absolute snail's pace. In the meantime, I would suggest that these healthcare economists instead focus their efforts on determining what would comprise an ideal price transparency tool: What do consumers want and need, and how could it impact spending and decision-making on care. That's the kind of academic study healthcare finance needs right now. - Ron (@FierceHealth)