Price Transparency and Value-Based Purchasing

Value-based purchasing is supposed to ensure that health payers are buying outcomes, not just a volume of services.  Part of it involves measuring quality, hopefully actual health outcomes, and part of it is looking at the price paid for services and goods.  But all of it assumes that if people had information on those outcomes and on price, they would go to lower-cost providers who delivered at least equal quality.  That is a big leap.  But the basic characteristics of the commercial market at least provide a basis for thinking there is an opportunity for change.  A study of Massachusetts outpatient service price variation reveals a very wide range, which suggests that consumers and payers could save a fair amount if the lower-cost providers were used more frequently.   (HA Article)   The researchers looked at local price variation, which is the most meaningful to consumers, because realistically they aren’t going to travel very far for most medical services.  As is usually the case, they found very wide differences across providers for the same service, and for the same provider across payers.  Massachusetts has created a data set on 291 outpatient services that includes that actual price negotiated between and paid by the health plan to the provider.  About 40% of all outpatient spending by the largest insurers in the state was included.

There was significant geographic price variation across the state, with the highest service area being an average of 70% higher than the lowest.  There was large price variation between providers across all services, with ambulance, physical therapy, and lab testing services showing the greatest variation.  Outpatient services at a hospital were priced 76% higher on average than the same service in another setting.  Price was also clearly related to market share; with providers having a large market share tending to have higher prices.  The authors ran a simulation in which patients who saw providers with prices at the 75th percentile or higher instead went to lower-priced providers.  This would result in a savings of 13% for payers.  That is a lot of health spending.  Price transparency may or may not be helpful on its own.  Consumers probably need a nudge to actually switch to a lower-cost provider.  To the extent they have large deductibles, copayments or coinsurance, they probably have some financial incentive to consider price when selecting a provider.  But plans can help by using benefit designs that vary cost-sharing by the price charged, using reference pricing or similar methods.  They could also insist on paying the same amount for a service regardless of the setting it is delivered in.  And once again we see the potential for some structural reform–breaking up providers with large market shares.