Price and quality transparency in health care has often been seen as the missing link for extracting more value out of our health care system. With the appropriate financial incentives, along with easily accessible cost estimators and information on physician and hospital quality, patients could flock to the lowest-cost, highest-quality providers.
But a new study by the Health Care Cost Institute (HCCI) prompted some to declare that transparency in health care might not be all that useful. Fortunately, this is far from the case. In fact, the study underscores the need for more price and quality transparency along with better insurance benefit design.
“Without the incentive to shop around (through deductibles, copays, and coinsurance), why would a patient care if her MRI is more or less expensive?”
The topline result of the analysis is that only about 7 percent of health spending – around $38 billion annually – is spent out-of-pocket on so-called shoppable services. A shoppable service is one that a patient can plan for. Finding the best cardiologist in an ambulance during a heart attack is not shoppable. But finding a low-cost, high-quality MRI provider is eminently shoppable.
The implication for some is that because only 7 percent of total spending is spent at the point of service on shoppable care, we can’t really expect transparency tools and patient shopping for services to drastically affect health care spending. After all, without the incentive to shop around (through deductibles, copays, and coinsurance), why would a patient care if her MRI is more or less expensive?
This de minimis spending characterization is somewhat misleading, and another important result from the study explains why. It turns out that, at the upper end, an estimated 43 percent of the $524 billion ($225.32 billion) spent on health care through employer-sponsored insurance went towards shoppable services. Therefore, $187.62 billion ($225.32 billion minus $37.7 billion) was spent on shoppable services thatwere not out-of-pocket. This is both a problem, and an opportunity.
For starters, we don’t know what share of the $187 billion insurers spent on shoppable services involved the patient’s own money on the line. Even if your insurer pays $500 for an MRI – whether transparency is useful depends on how much of that $500 you are on the hook for. A patient with a $25 copay is less incentivized to shop around than a patient with 10 or 20 percent coinsurance.
Read the entire piece here at Forbes
This piece originally appeared in Forbes