Study: Price Transparency Benefits Consumers

Published January 16, 2015

Recent public and private initiatives have sought to lower health care costs by making health care prices more transparent. A new study published in the Journal of the American Medical Association (JAMA) suggests these efforts may be paying off, as price transparency lowered total claims payments for common medical services.

The study, “Association Between Availability of Health Service Prices and Payments for These Services,” appears in the October 22/29, 2014 edition of JAMA and looked at whether allowing patients to see prices for several procedures led to lower costs. The study concluded patient access to price information before obtaining health care services can lead to lower health care costs.

Greg Scandlen, a senior fellow at The Heartland Institute and the founder and director of Consumers for Health Care Choices, says the JAMA study clearly shows patients pay more attention when they have their own money at stake.

“When patients are in the driver’s seat, they start paying attention to things like treatment options, provider options, and whether they need to see an MD or NP [nurse practitioner] or whether they need a certain test or medication or if there isn’t something more affordable,” Scandlen said. “If they were to control the money, then the demand for price transparency from medical providers would be irresistible. There’s no substitute for an angry consumer beating on their desk and yelling at them about why a drug cost $300 when they thought they were only going to be charged $100.”

Claims Decline After Transparency

The study looked specifically at the medical claims paid by employers on behalf of their employees after a price transparency tool was made available. It involved more than 500,000 individuals in 253,000 households between 2010 and 2013, and researchers looked at three common medical services: laboratory tests, advanced imaging services, and clinician office visits.

Costs for employees who used the price transparency tool were 14 percent lower for lab tests and 13 percent lower for imaging services compared to those who did not use the tool. Costs associated with office visits declined by 1 percent.

In terms of dollars saved, those using the price transparency tool for imaging services saw a reduction of $124.74 per instance, compared to a more modest $3.45 for laboratory tests and $1.18 for office visits.

Dr. Roger Stark, a health care policy analyst at the Washington Policy Center and a retired physician, says the study shows patients are capable of shoppinng for care in a market for health care services.

“As consumers, patients need to know and understand costs for health care treatments, just like they need to know costs before purchasing non-health-care goods and services,” Stark explained. “The JAMA study examined patients who had employer-paid health insurance and concluded that people made cost-conscious decisions when they knew prices.”

Reversing Decades of Opacity

Devon Herrick, a senior fellow and health care researcher for the National Center for Policy Analysis (NCPA), said when consumers control more of their own health care dollars, doctors and hospitals respond by competing for patients on price, which requires them to disclose price.

“Price transparency is a byproduct of competitive markets, not the cause of them,” Herrick said. “What this study shows is that patients who already have an incentive to control their spending do a better job when they have access to price data.”

Merrill Matthews, a resident scholar with the Institute for Policy Innovation (IPI), says price transparency hasn’t been common in health care since the 1970s, when the growth of third-party payment systems made it less important. He cited the growing trend of high-deductible health insurance plans and health savings accounts as reasons for the reversal.

“We’re slowly bringing price transparency back through health savings accounts and other high-deductible health plans as more people in the United States move to high-deductible plans to escape the worst excesses of Obamacare,” Matthews said. “Because of high deductibles, people become much more price-conscious and concerned about prices, and when you have a reason to ask about how much things cost it is going to force medical providers to be more transparent in their pricing.”

Kenneth Artz ([email protected]) is a freelance writer for The Heartland Institute.