Contrary to expectations, giving consumers prices so they can shop for health care services may only have a modest effect on reducing health spending

March 2, 2016 — Contrary to expectations, giving consumers prices so they can shop for the best value for non-urgent medical services may only have a modest effect on reducing health spending, says a new analysis from the Health Care Cost Institute (HCCI). Although a large portion (43%) of annual health care spending is for services in which consumers could shop for based on price, less than 7 percent of total spending is actually paid out-of-pocket by consumers for shoppable services. That means for the vast majority of health care spending, providing incentives or information to steer consumer behavior will have limited effects on improving the value of the health care dollar, says the researchers.

“There is not that much savings to be gained from consumer shopping for many non-emergency services,” says Amanda Frost, an HCCI researcher who authored the report. “While we strongly believe that consumers are entitled to price information and to know what they are going to pay prior to any health care service, we shouldn’t rely on price transparency as a way to create savvy shoppers to save health care dollars,” she says. Frost and her colleagues say more attention should be paid on directly engaging providers and payers—both insurers and employers—since gains from consumer price shopping are limited.

HCCI’s report, “Spending on Shoppable Services in Health Care,” examined 2011 claims data for people under age 65 with employer-sponsored health insurance. Researchers looked at total spending on shoppable health care services, which are ones that can be scheduled in advance. Examples include: flu shots, non-emergency hip or knee replacement, colonoscopies, urinalysis, and blood and strep tests. Prescription drugs and devices were not considered shoppable in this analysis.

Highlights of what they found:

  • In 2011, about 43% of the $524.2 billion spent on health care services for commercially insured people was considered shoppable. More than half of spending was on non-shoppable services.
  • About 15% of the total spent on health care for the commercially insured—nearly $81 billion—was spent out of pocket.
  • $27.7 billion, about seven percent of the total, was spent out of pocket on shoppable services.
  • Most out-of-pocket dollars (44%) were spent on shoppable ambulatory doctor services.

Health insurance benefit design strongly influences what a consumer pays out of pocket. However, HCCI shows that consumers hoping to use price shopping to lower their coinsurance and deductible payments could influence only about 65 percent of their out of pocket payments per year. Price shopping will generally have little effect on copayments since these are typically set amounts and will not vary.

Researchers also found that consumers may gain little from shopping for many outpatient services, and they found more price variation in inpatient services than in outpatient services. The study found that prices varied more for the non-shoppable inpatient services than for the shoppable ones.

Knee and hip replacements, inpatient services that are often pointed to as one to shop for, had less price variation than other services. The authors say shopping for knee and hip replacement is not a bad idea but it really depends on where you live. A knee replacement in Palm Bay FL, for example, costs $16,822 more than the same surgery 180 miles away in Miami. Shopping in some markets may be more useful than in others.There was much greater price variation for hip and knee replacement in Kentucky, Texas and Georgia than in Montana or Hawaii.

“Consumers are entitled to price and quality information but we need to be realistic about how much having this kind information can drive changes in the market,” says Lynn Quincy, of Consumers Union, who along with Frost, and HCCI Executive Director David Newman, has written an accompanying Health Affairs blog post titled “The promise of what health care consumerism offers is overstated.”

The researchers say that payers, employers and other stakeholders should focus on targeting spending more directly. “Consumer shopping is important but it should not be at the fore of delivery system design. Since providers are setting the prices, it makes more sense to directly engage them and payers because they are in the best position to exert downward market pressure on prices,” says HCCI’s David Newman.

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