"Price Transparency" Doesn't Curb Spending In Medicine

I love price transparency. When I book an airline seat, I will base my entire decision around the fact that one flight is $3 cheaper. Leg room be damned. But does price transparency work in the healthcare industry? A study appearing in the Journal of the American Medical Association may be telling us something important: Healthcare isn't like other industries.

For the video version of this post, click here.

What you will pay for a given office visit or procedure is a nebulous thing at the best of times. While websites have sprung up offering comparison shopping for things like mammograms, colonoscopies, and hernia repairs, it's often hard to know exactly how that advertised price will interact with your own insurance plan, deductible, and various co-pays. In other words, price shopping in medicine is really hard.

The JAMA study looked at two very large corporations that partnered with Truven Health Analytics (recently purchased by IBMs Watson group) to give their employees access to a robust cost-comparison tool.  The cool part about the tool is that it included information about your own health plan, including how much of your deductible you'd spent so far, to give really accurate estimates of out-of-pocket and total costs for various procedures and visits.

The researchers compared spending habits among employees in the year prior to the tool being available with the year after, using matched controls to account for secular trends.

And it didn't work.  At least, if the hope was to get people to spend less on healthcare.  In fact, those who had access to the tool spent a bit more than those who didn't (roughly 60 dollars a year more – not much, but hardly the "billions saved" that the Truven website promises). Moreover, the transparency tool users were more likely to use pricey hospital-based outpatient departments instead of freestanding clinics.

The more interesting questions is – why?

Well, for one thing, not many people bothered to use the tool – about 10% of employees tried it out in that first year. Additionally, the tool reported both out-of-pocket and total costs. It's conceivable that, when presented with the same out-of-pocket cost, a reasonable human might choose the service with a higher total cost – after all that's the better deal, right? The researchers point out that most of the searches on the web tool were for procedures that would exceed the deductible, making price-shopping more or less moot.

Finally, let's not forget that healthcare is not really a commodity. Patients like their doctors, their health system. There is real value in getting care all in one place.

So healthcare is not where the airline industry is, which I'm sure is a relief to hospital CEOs nationwide. For price transparency to really matter, we would need a radical change to our insurance policies. But that is something most patients, and most politicians wouldn’t buy.

The US spends an appropriate amount on end of life care, if you massage the numbers a bit.

For the video version of this post, click here. I think it's fair to say that there is a certain narrative regarding costs of health care in the United States. It goes like this:  "The US spends more on healthcare than any other nation, and gets less for it".

Is that really true?

Moreover, how do we even compare costs between nations? Well, given that around 25% of Medicare expenditures are accrued in the last year of life, researchers from the University of Pennsylvania examined how 7 different countries – all large, western democracies, including the US, treat individuals who died with cancer. The research appears in the Journal of the American Medical Association. Using national registries in each of the countries, Zeke Emanuel and colleagues were able to look at questions like what percentage of individuals died in the hospital and, importantly, how much money did each country spend on them.

These types of studies can be difficult to interpret, so I'll give you the party line first, and then some criticisms. First off, the good news, the US had lower rates of death in the hospital than any of the 6 other countries at 22%. Compare that to 52% in Canada.  That 22% figure is WAY down from rates in the 1970's where more than 70% of individuals with cancer in the US died in the hospital.

What about costs? Well, the standard narrative didn't hold up that well. In the last 6 months of life, the average American with cancer accrued around $27,000 worth of hospital costs. That's a lot more than those in The Netherlands ($13,000), but pretty similar to those in Canada and Germany.

I wouldn't be surprised if we see certain press outlets, or, perish the thought, politicians crowing about how American health care costs seem pretty manageable.  But here are some things to consider.  First, this study only examined cancer patients.  What's more, they only examined cancer patients who died. This says nothing about the myriad other costs our highly-medicalized society accrues on the day to day. Second, the study looked only at inpatient hospital costs. Americans spend less time in the hospital at the end of life thanks to a fairly robust nursing facility and hospice system. None of those costs were included.  Third, in the US physician fees are billed separately from hospital fees. Not so in the other six countries, and physician fees were NOT included in the US calculus.

Finally, a bit of a technical issue. How do you convert from, say, Euros to dollars in a study like this? The intuitive answer would be to use some average exchange rate over the time period studied. The authors actually used the health-specific purchasing power parity conversion rate. That's a mouthful, but basically it's a number that reflects the relative costs of purchasing a market-basket of health related goods in each country and adjusts for that.  In other words, countries where healthcare is cheaper (relative to the true exchange rate) would have their end-of-life costs adjusted upwards, making them look more expensive. I suspect this could move the final numbers by as much as 20% in either direction.

So there you go. We're doing OK here in the US, at least when it comes to caring for patients with cancer. But remember that complacency can be costly.