Price Transparency to Lower Spending: Difficult but Possible, Authors Say

There are some health policy experts who believe that price transparency will work to bring down healthcare spending. In a recent article in JAMA, Gilbert Benavidez, MPH, and Austin Frakt, PhD, say that the notion has rarely worked, but they suggest there are 2 ways that it might.

The issue isn’t because the concept is fundamentally flawed, they say; rather, it is largely because of the way the idea of price transparency has been implemented, among other factors.

With healthcare services, the concept behind price transparency is that patients will shop around for the best price when seeking something like elective surgery or imaging services. Many of those services have prices that vary widely; this year, the Trump administration enacted an executive order requiring hospitals to disclose prices.

Benavidez and Frakt say that giving patients pricing information does not mean they will use it; transparency alone isn’t enough, they write, citing studies in The American Journal of Managed Care^® and JAMA showing that most people in commercially insured plans with access to such tools did not know about them and of those that did, only 2% used them.

In the JAMA study, researchers at Harvard Medical School found that employees also rarely used price information from their provider and that no link was found to lower spending.

Shopping for healthcare isn’t like shopping for a consumer good, like an appliance, because the healthcare market, when dealing with people who are insured, is different. While there is cost sharing in the form of coinsurance and co-pays, most insured individuals are shielded from most of these costs and are not paying for the full cost of care out of their own funds. That removes any incentive to shop around in order to save money, the 2 authors point out.

In addition, patients may just follow their doctor’s advice. And lastly, many patients may use price as a proxy for quality, since determining the quality of prospective healthcare is difficult to discern. So, “even if patients have price information, they may not choose the lowest price available,” the authors write.

Efforts to push pricing tools have largely centered on increased cost sharing, mainly through the use of high-deductible health plans, the idea being that the insured would use the pricing tools to lower their out-of-pocket costs in the deductible range of their plans. Most studies have not found this to be the case—either for decreasing health spending or encouraging price shopping.

Two methods that hold potential, the authors say, are reference pricing and rewards programs.

In reference pricing, an insurer or employer sets a maximum contribution that it will make toward the price of a healthcare service, procedure, or pharmaceutical in a therapeutic class. Similarly, rewards programs set maximum reimbursement thresholds, and enrollees who use services at prices below the levels receive rebates. Both methods have been shown to be more effective than pricing transparency tools alone, the authors write.

Given biosimilars’ cost advantage over originator biologics, reference-based pricing has been discussed as one possible way to increase their use in the United States.

In an interview with The Center for Biosimilars^®, Frakt says it is possible such a model could work, depending on the arrangement.

“If I’m a payer, there’s no question I want to drive the population I’m covering to the lowest-cost clinically equivalent drug,” he says. There are different ways to do that, with one way being to perhaps cover only 1 drug, or to offer to cover only the cheapest and use that to drive down price in any negotiations—in other words, saying “whoever gives me the best deal will get all of my business. Basically you’re trading volume for price.”

A payer would only do something else if they were concerned that not having more generous drug coverage would hurt their market in some way.

Other options are tiered formularies and reference pricing. “If you are willing to cover a drug at a certain price and there is an equivalent one, why not just pay for it up to certain point and have the patient pay the difference? That’s sort of logically consistent,” he says.

However, there could be trade-offs.

“The only reason not to is if you actually lose something on price because you’re not guaranteeing that all the volume goes to one manufacturer,” he notes. If allowing more generous pharmaceutical choices leads to everyone being a little worse off because the price is not as low, one has to ask if that is a worthwhile trade-off, he said.

When it comes to rebates and rewards, people respond differently than they were asked to choose the drug on the lowest tier. Without getting something put in their hands, such as a check or reward, “patients don’t respond in the same way. It doesn’t feel like a rebate.”

If a payer is asking a patient to use or seek out a lower-priced service or use a less-expensive drug in order to financially benefit the payer, a patient might reasonably think “what’s in it for me? I should get something for my trouble,” Frakt said.