Could price transparency actually increase health costs?

Patients assume higher costs mean higher quality, physician says

Topics: Finance, Public Reporting, Management Tools, Performance Improvement

April 10, 2013

Duke University physician and behavioral scientist Peter Ubel warns that hospital price transparency legislation intended to reduce health care costs may fail because price can have a "placebo effect" on patients. 

Writing in The Atlantic this week, Ubel notes that a growing number of states are passing price transparency laws and federal legislators are considering a national effort. But, he writes, that does not necessarily mean that hospitals will have to lower their prices because the price pressures of a "traditional consumer marketplace" do not apply to health care.

Patients do not 'shop' for health care like they do for electronics

"[M]ost patients have little inclination, or motivation, to shop for health care bargains" because insurers will pay for the overall cost and leave patients with a fixed copay, Ubel writes.

Moreover, "people assume the cost of a good or service tells them something about its quality," he writes. A 2008 study in JAMA found that patients reported feeling less pain after they took painkiller that they were told were more expensive. The pills were actually the same as the so-called less expensive pills in the study, so the researchers concluded that price may actually create a placebo effect.

Insurers may increase prices when they know what other companies are paying

In the Atlantic article, Ubel suggests that price transparency laws may actually prompt health care providers to increase their price when they realize that competitors are able to charge more for the same services. Ubel cites a 2011 study in NEJM that found that publishing the prices for Ready-Mix Concrete in Denmark caused the price of the product to increase 15% to 20% in just one year as the less-expensive suppliers realized they could charge more.  

In addition, he notes that price transparency could hamper insurance negotiations. "If price transparency made such negotiations public, then no hospital in its right mind would offer a discount to one insurance company unless it was willing to offer that discount to everyone," Ubel writes.

Ubel concludes that tranparency laws "should include research funding that would enable experts to evaluate how the law influences patient and provider behavior." Moreover, price transparency should be accompanied by quality transparency. "We need to provide consumers with information not only about the cost of their services but also about the quality of those services, so that they can tradeoff between the two when necessary," Ubel writes (Ubel, The Atlantic, 4/9).

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