The Changing Consensus on Healthcare Cost

The Changing Consensus on Healthcare Cost
May 05 01:00 2016

FEW YEARS AGO, it was accepted wisdom among economists that shifting more of the burden of medical expenses to patients would help reduce the cost of healthcare in America, the highest in the world. Cost-sharing was supposed to inject rationality into healthcare pricing: patients would have an incentive to shop for the best deals, which would apply pressure on hospitals to lower their prices. The theory has helped inform the design of many employer health plans in the last decade, including the controversial plan that Harvard introduced for its faculty and nonunion staff members two years ago, which implemented deductibles and coinsurance.

But the research on cost-sharing and comparison shopping suggests that healthcare consumers aren’t responding as the theory suggested. A new paper by Harvard Medical School (HMS) researchers found that giving patients access to a price-comparison tool didn’t lower their spending, contributing to a growing literature suggesting that patients aren’t responding to incentives to comparison shop. Schaeffer professor of health care policy Michael Chernew, who coauthored the paper, also chairs the University Benefits Committee, which had recommended the introduction of cost-sharing in Harvard’s plan in 2014.

The study looked at 150,000 employees at two large U.S. companies (one on the West Coast and one with offices across the country) that provided an online price-comparison tool through their healthcare plans. Patients could use the tool to compare different providers’ prices for routine services, like MRIs and blood tests. The tool showed patients what their approximate out-of-pocket costs for a procedure would be (based on their deductibles and coinsurance), rather than just the full cost of the service, said Sunita Desai, a fellow in health care policy at HMS and an author of the study. Compared to other comparison tools, she said, this one was easier to use and understand.

“One of the major issues in our healthcare system is what appears to be inappropriate variation in price,” said associate professor of healthcare policy and medicine Ateev Mehrotra, the paper’s lead author. “There have been a lot of efforts in the United States to push the idea of empowering patients through consumerism.” But when the team compared the test group to 296,000 employees at companies that didn’t offer a comparison tool, they found the former no more likely to spend less on healthcare. Only 10 percent of employees used the tool at all. The group offered the tool showed a slightly higher increase in healthcare spending after one year, when compared to the control, though more research is needed to understand what that means. (One hypothesis, Desai said, is that patients associate higher costs with higher quality.) ..

Read full story at Harvard Magazine
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