Below is an excerpt from the Texas Conservative Coalition Research Institute's 2020-2021 Healthcare & Human Services Task Force Report. You can read the entire report here.
In today’s era of Amazon, Costco, and Google, consumers are conditioned to competitively shop for goods and services. The concept is simple. Consumers want lower prices, so they shop for the best value and, metaphorically speaking, vote with their feet by taking their business to the retailer with the best pricing. Merchants, in turn, respond to this demand by lowering costs to vie for a greater share of the market. This is the free market at its finest: consumer demand fosters healthy market competition that ultimately drives down costs for everyone.
American consumers have embraced this concept with vigor, with today’s shoppers able to harness the power of the internet to compare prices on almost any good or service - with almost being the operative word. Although the concept of comparison shopping has permeated almost every facet of American consumerism, this notion has not organically translated into the healthcare marketplace.
According to data by the U.S. Bureau of Labor & Statistics, in 2019 average annual household spending on healthcare increased by about 4.5 percent over 2018, with the average American spending almost as much of his or her gross annual income on healthcare expenses as education, apparel and services, and gasoline (or other similar fuels) combined.[i] While most individuals think nothing of comparing prices prior to purchasing anything from laundry detergent to a car battery, they would likely never consider comparison shopping a common x-ray or magnetic resonance imaging (MRI) test, which generally costs considerably more.
This raises the question: Why don’t Americans comparison shop for their healthcare services, and what, if anything, can be done to promote this practice, with the end goal of bending the healthcare cost curve?
Comparison Shopping for Healthcare Services
The key difference between the healthcare marketplace and virtually all other areas of the consumer market is the ability to easily compare prices. Although multiple studies and polls have shown that consumers would like to shop for the best value in healthcare,[ii],[iii],[iv] the current system does not encourage price comparison.
Research has found that healthcare consumers want a better value and that patients do not typically equate more expensive healthcare with better quality care.[v] Even more importantly, a 2020 study examining the relationship between cost and quality in hospital care found no real correlation between the two.[vi] However, price comparison information must be made easier to both obtain and decipher if consumers are going to embrace comparison shopping in healthcare as they have done in other market areas. According to research by The Commonwealth Fund:
Ultimately, this kind of health care consumerism might be part of a generational shift. "Young people—who use their phones to choose restaurants and buy airplane tickets—might be predisposed to use price transparency tools," says Brent Parton, director of health policy and programs at SHOUTAmerica, a nonprofit aimed at engaging young people in health care system reform. But, he says, price information must be made available at "teachable moments," such as when people are seeking out routine or planned services, and must be integrated into their health care experiences (e.g., through mobile apps or as part of physician visits). "Health care data is not following us as much as it should be; the onus can't be on the consumer to dig it up…"[vii]
Price comparison shopping also has benefits beyond finding the lowest costs. Industry experts
have found that once consumers start to engage in researching their healthcare options to find the best prices, they start to look at other comparisons too, such as quality metrics. The Commonwealth Fund’s research continues:
Once patients start to look into health care prices, they may also become engaged in exploring the quality and safety of their care as well. "In our experience, when patients don't ask about prices, they don't ask about quality either," says Healthcare Blue Book's [CEO Jeffry] Rice. "When they start to become consumers [by comparing prices], they start to ask good questions about quality too."[viii]
The importance of including quality and health outcomes in this conversation cannot be overstated. The best value healthcare system is one that offers high-value quality care at competitive prices, and not one that lowers costs simply by lowering quality. Ensuring that consumers are educated and engaged on both the quality and pricing fronts is vital to transforming the nation’s healthcare system.
Price Transparency Initiatives
Although this concept has been slower to make its way to the healthcare space, both the private and public sectors have begun pursing various answers to the price transparency challenge over the past decade, with the most intense activity springing up relatively recently.
Some solutions have occurred organically, with private sector companies responding to the call for greater price transparency. One such company is the Healthcare Blue Book, which is based upon the idea of the Kelley Blue Book for cars and operates a subscription-based website that allows customers to compare “fair price” and quality for healthcare services. Other similar options exist as well. Health insurance companies have also developed some of the most robust comparison tools thus far, allowing their enrollees to log into a website or app to calculate and compare their out-of-pocket expenses- even though many enrollees do not take advantage of these options.[ix],[x]
The federal and state governments have also begun engaging in transparency policy reforms. The National Conference of State Legislatures looked at price transparency laws across the country and found that a number of states have begun enacting their own laws ranging from all-payer claims databases and direct consumer price comparison tools to programs that reward consumers for seeking out best value care (discussed in greater detail below).[xi]
Texas has also pursued its share of price transparency laws going back several years. In 2007 the 80th Legislature passed SB 1731 (Duncan, SP: Isett), which gives consumers the right to health care price estimates, and requires the Texas Department of Insurance (TDI) to collect and publish information on the average costs of certain healthcare serves. TDI has parlayed this requirement into its own price transparency tool, TexasHealthcareCosts.org.[xii] And in more recent sessions, the Legislature enacted SB 507 (85R) (Hancock, SP: Frullo) and SB 1264 (86R) (Hancock, SP: Oliverson) to more aggressively address the issues of surprise medical bills and provide for greater consumer protection against such practices.
In addition, the federal government has taken on this issue, with the Trump Administration championing the benefits of increasing competition within the healthcare marketplace through transparency. Over the past four years, various initiatives commenced to make healthcare cost data available to consumers for hospital, insurance,[xiii] and prescription drug benefits.[xiv] While we have yet to see how these policies will fare under the current administration, there is no question that these unprecedented actions were important first steps in beginning to shed light on healthcare pricing from consumers’ perspective.
While all of the aforementioned initiatives are critically important, policymakers and experts must still contend with how best to encourage consumers to take advantage of information once it is made available and to engage in price and quality comparisons.
Price Transparency Must be Uniformly Applied
Hospital and prescription drug pricing are often, and understandably, the center of discussions on the need for pricing transparency in the healthcare marketplace. Ambiguity in hospital charges versus actual costs, lack of clarity in which providers within a hospital’s emergency department are “in-network,” and questions around how much research and development costs are built into drug pricing have led many transparency initiatives to focus on these areas. However, transparency, and the competition it fosters, only work if it is uniformly applied to all facets of the healthcare system.
Too often in today’s world of ever-increasing healthcare costs, various providers and entities are quick to point fingers and blame one another for skyrocketing costs. And, while there are some clear outliers that should be addressed, a lot of the confusion and helplessness consumers feel over trying to shop for the best value care could be addressed by ensuring that all areas of the healthcare marketplace are subject to the same price transparency standards. Hospitals and drug manufacturers are crucial to this equation, but so too are physicians, anesthesiologists, radiologists, pharmacists, and so on.
1. Right to Shop: A Test Case in Price Transparency
One model, known as Right to Shop, has specifically taken on this issue, and has enjoyed some early success. Right to Shop can serve as a test case for how price transparency and consumer engagement have impacted total healthcare costs.
Prices vary widely in health care due to a variety of factors. The same x-ray on the same kind of machine can fluctuate in price from a few hundred to thousands of dollars if the x-rays are performed in different locations.[xv] A 2019 study by the national Health Care Cost Institute, a national non-profit organization focused on data-driven information surrounding healthcare economics, found that the cost of a procedure can cost almost 40 times more in the same metro area depending simply on where it is performed.[xvi]
However, most consumers often do not think to shop around for the best price for something like a diagnostic imaging test and, even if they wanted to, it can be difficult to find the actual price of the test or procedure. Most information that can be obtained by consumers will quote the insured’s out-of-pocket expenses. And, while this is a vital piece of the equation, this information does not capture the total cost to the healthcare system. For instance, a patient may pay only a slighter higher co-pay or deductible for choosing to have an orthoscopic knee procedure in a hospital rather than an ASC, but the cost to the healthcare system could be thousands more. While this may not significantly impact the patient in the short-term, these cumulative costs contribute to higher out-of-pocket expenses in the future in the form of premium and cost sharing increases.
Research has shown that simply providing consumers with pricing tools does not result in behavior modification.[xvii] Those models that have achieved change in consumer behavior have included either rewards or disincentives paired with the ability to comparison shop.[xviii] The Right to Shop model is predicated on this exact premise, educating consumers about the total cost of their care, not just the out-of-pocket portion, and rewarding them for choosing highest value care.
The concept is simple: A provider prescribes a medical service, such as an MRI. The patient then calls a toll-free line or goes to a website operated by the insurer or employer to research options and prices, and then chooses the best location at the best value. After receiving the MRI at the location of his or her choice, the patient then receives a cash benefit based upon the shared savings for choosing the best value care. The crux of this program’s success lies in the ability of consumers to access quick, accurate, and transparent cost comparisons.
Private companies that have implemented these programs have seen positive changes. A 2019 study looked at early data from 29 employers that began implementing shared savings programs in 2017 finding that, even with minimal participation in the first year as the program rolled out, the employers saved more than $2 million and saw overall reduction of about 2 percent for covered services.[xx] While these are modest gains, the crucial takeaway is that consumers will comparison shop when they are empowered to do so, and this competition bends the cost curve.
It should be noted that, in the private market, a right-to-shop policy could be considered profit sharing. Lawmakers should ensure that no existing laws or regulations impede an employer or insurer’s ability to implement this type of program if they so choose but should not mandate such arrangements in the private sector. These types of incentive plans can, and should, grow organically in the free market. This idea should however be explored within state government where services are funded by taxpayer dollars.
New Hampshire became the first state to operate an incentive-based program for its state employees in June 2010.[xxi] In just over three years of operation, the state found that almost 90 percent of its enrollees had “shopped” at least once, with two out of three shopping every year and receiving an incentive payment.[xxii] Savings during that timeframe averaged around $670 each time a service or procedure was shopped,[xxiii] with the state saving more than over $12 million and providing over $1 million in incentives to consumers.[xxiv] The State of Kentucky implemented a Right to Shop model in 2015 to help reign in growing healthcare costs for state employees.[xxv] By mid-2018 the program had resulted in more than $13 million in savings for the state’s taxpayers, with employees cumulatively earning about $2 million in incentives for choosing best value care.[xxvi] According to NCSL, several other states have since passed legislation fostering Right to Shop models, either by implementing it as part of the state’s health benefit coverage, or by establishing frameworks or incentives for private insurers to build such programs.[xxvii]
Texas took its first steps towards Right to Shop for public employees covered by the Employees Retirement System (ERS) and the Teacher Retirement System of Texas (TRS) during in the 86th Legislature. The 2020-21 General Appropriations Act included budget riders directing ERS and TRS to incentivize participants to shop for lower cost care within their respective health plans in order to achieve shared savings,[xxviii] and these riders are continued in both budget bills in the current session.[xxix]
2. Policy Recommendation: Continue Right to Shop in ERS and TRS, Identifying and Addressing any Impediments to the Initiative
The budget riders adopted last session were a vital first step in promoting transparency and competition within state-funded healthcare coverage and should certainly be continued. However, lawmakers should consider adding language to the current riders to require ERS and TRS to identify any barriers to widespread and successful implementation of the program, address any impediments that are within the agencies’ purviews, and notify the Legislature of any that require statutory changes. This initiative has real potential not only to educate and empower state employees to take ownership of their healthcare decisions, but also to save finite taxpayer resources.
Legislators could also consider variations on the incentive offered through Right to Shop if they are a better fit for the Texas ERS and TRS models. For instance, if cash rebates are legally or administratively cumbersome for the agencies to administer, the state might look at rebates in the form of premium or out-of-pocket discounts for enrollees who choose best value care. Policy Recommendation 3, below, would ease the ability of the state and private insurance companies to offer these types of incentive models.
3. Policy Recommendation: Revise Regulations that Stifle Innovation
While state leaders should not mandate that private businesses implement any type of profit-sharing, lawmakers should ensure that no existing laws or regulations prevent private businesses from employing innovative initiatives aimed at engaging consumers in better healthcare decisions.
One particular section of the Texas Insurance Code warrants further exploration and a possible revision to make certain that employers and insurers can implement Right to Shop-like programs if they so choose. The Texas Insurance Code § 541.056 is an anti-inducement statute and serves a valid purpose in preventing potentially unscrupulous practices in selling insurance policies. However, a portion of the existing code could be construed to prevent companies from utilizing incentive or shared-savings models. Subsection (a) reads, in part (emphasis added):
....it is an unfair method of competition or an unfair or deceptive act or practice in the business of insurance to... directly or indirectly pay, give, or allow or offer to pay, give, or allow as inducement to enter into a life insurance contract, life annuity contract, or accident and health insurance contract a rebate of premiums payable on the contract, a special favor or advantage in the dividends or other benefits of the contract, or a valuable consideration or inducement not specified in the contract...
Statute does provide for limited exceptions to these prohibitions, such as health-related services and premium adjustments for group insurance policies,[xxx] but does not appear to clearly allow for a shared-savings arrangement. In addition, the 80th Legislature passed HB 1847 (Hancock/ Sp: Averitt) to allow health plans to offer certain “noninsurance benefits” to enrollees. State statute defines this type of benefit as being “reasonably related to the type of policy or certificate issued” and provides the following examples:
(1) discount cards for health care programs, vision care programs, dental care programs, prescriptions, physical fitness programs or facilities, or other similar programs;
(2) financial planning, will preparation, or similar services; and
(3) contributions for educational savings on behalf of a policyholder or certificate holder.[xxxi]
While TDI did adopt administrative rules that allow the agency to examine and determine “reasonable relation” outside of the specific examples provided by law,[xxxii] there is no mention or exception for a Right to Shop- type program. Because shared-savings models were not prevalent when this statue and associated rules were adopted, it makes sense that current law might not allow for such innovation. Since these models are becoming more commonplace, the Legislature should consider amending current statute, and directing TDI to amend rules, to clarify that shared-savings programs (whether actual shared savings, or out-of-pocket cost reductions), as set forth in a model similar to the Right to Shop concept, do not violate anti-inducement or anti-rebate laws.
[i] U.S. Bureau of Labor Statistics, “Consumer Expenditures- 2019,” Economic News Release, September 19, 2020. Available at: https://www.bls.gov/news.release/cesan.nr0.htm. [ii] Foundation for Government Accountability. “New Poll Find Voters Want the Right to Shop for Health Care.” January 29, 2018. Available at https://thefga.org/poll/right-to-shop-poll/. [iii] The Foundation for Government Accountability. “Voters Support Healthcare Price Transparency.” September 2020. Available at: https://thefga.org/poll/voters-support-health-care-price-transparency/. [iv] YouGov Poll for LUGPA. “New Survey Finds 91% of Americans Want Healthcare Price Transparency.” April 1, 2020. Available at: https://www.lugpa.org/americans-wanthealthcare-price-transparency. [v] Drachenberg, Jill. “Study: Consumers Don’t Equate High Healthcare Costs with High Quality.” Relias Media. April 8, 2016. Available at: https://www.reliasmedia.com/blogs/1-hospital-report/post/137668-study-consumers-dont-equate-high-healthcare-costs-with-high-quality. [vi] Viles, Emily. “Colorado Hospital Value Report finds cost of care does not equate to quality of service.” August 13, 2019. Available at: https://stateofreform.com/news/colorado/2019/08/colorado-hospital-value-report-finds-cost-of-care-does-not-equate-to-quality-of-service/. [vii] Hotstetter, Martha and Klein, Sarah. “Health Care Price Transparency: Can it Promote High-Value Care?” Commonwealth Fund. Available at: https://www.commonwealthfund.org/publications/newsletter-article/health-care-price-transparency-can-it-promote-high-value-care. [viii] Ibid. [ix] Schencker, Lisa. “Why don’t more people shop for healthcare online? Online tools exist, but most don’t use them.” Chicago Tribune. July 20, 2018. Available at: https://www.chicagotribune.com/business/ct-biz-hospital-price-transparency-0722-story.html. [x] Gustafsson, Lovisa and Bishop, Shawn. “Hospital Price Transparency: Making it Useful for Patients.” The Commonwealth Fund. February 12, 2019. Available at: https://www.commonwealthfund.org/blog/2019/hospital-price-transparency-making-it-useful-patients#:~:text=The%20lesson%3A%20price%20transparency%20absent,improvements%20in%20the%20care%20provided.&text=Encourage%20more%20shared%20decision%2Dmaking,become%20part%20of%20the%20equation. [xi] National Conference of State Legislatures. “Transparency of Health Costs: State Actions.” Available at: https://www.ncsl.org/research/health/transparency-and-disclosure-health-costs.aspx. [xii] See Texas Department of Insurance.“Health Price Transparency.” Available at: https://www.tdi.texas.gov/health/healthprices.html. [xiii] National Conference of State Legislatures. “Transparency of Health Costs: State Actions.” Available at: https://www.ncsl.org/research/health/transparency-and-disclosure-health-costs.aspx. [xiv] U.S. Department of Health & Human Services. “Face Sheet: Trump Administration Finalizes Proposal to Lower Drug Costs by Targeting Backdoor Rebates and Encouraging Direct Discounts to Patients.” November 20, 2020. Available at: https://www.hhs.gov/about/news/2020/11/20/fact-sheet-trump-administration-finalizes-proposal-to-lower-drug-costs.html. [xv] See Save on Medical. “Five Imaging Procedures with the Largest Cost Variance.” April 7, 2017. Available at: https://www.health-peek.com/five-imaging-procedures-largest-cost-variance/. [xvi] Kennedy Kevin, Johnson William, Rodriguez Sally, Brennan Niall. “Past the Price Index: Exploring Actual Prices Paid for Specific Services by Metro Area.” Health Care Cost Institute. April 30, 2020. Available at: https://healthcostinstitute.org/in-the-news/hmi-2019-service-prices. [xvii] Benavidez G, Frakt A. Price Transparency in Health Care Has Been Disappointing, but It Doesn’t Have to Be. JAMA. 2019;322(13):1243–1244. doi:10.1001/jama.2019.14603. [xviii] Ibid. [xix] Foundation for Government Accountability. “Right to Shop.” Available at: https://thefga.org/research/right-to-shop/. [xx] Livingston, Shelby. “Employers save money by paying workers to shop for healthcare.” Modern Healthcare. March 4, 2019. Available at: https://www.modernhealthcare.com/payment/employers-save-money-paying-workers-shop-healthcare. [xxi] Willingham Sara. “Compass SmartShopper Program.” Memo to employees. New Hampshire Department of Administrative Services. June 28, 2010. Available at: https://das.nh.gov/hr/documents/compass%20memo.pdf. [xxii] Archambault Joshua. “Right to Shop: The Next Big Thing in Health Care.” Forbes. August 5, 2016, Available at: https://www.forbes.com/sites/theapothecary/2016/08/05/right-to-shop-the-next-big-thing-in-health-care/?sh=1920765f4f60#399d35188fbc. [xxiii] Ibid. [xxiv] Ibid. [xxv] Rhoads Jared. “Right to Shop for Public Employees: How health care incentives are saving money in Kentucky.” Foundation for Government Accountability. March 8, 2019. Available at: https://thefga.org/wp-content/uploads/2019/03/RTS-Kentucky-HealthCareIncentivesSavingMoney-DRAFT8.pdf. [xxvi] Ibid. [xxvii] National Conference of State Legislatures. “Transparency of Health Costs: State Actions.” Available at: https://www.ncsl.org/research/health/transparency-and-disclosure-health-costs.aspx. [xxviii] 2020-2021 Texas General Appropriations Act. Article I ERS Rider 16 and Article III TRS Rider 20. [xxix] See SB 1, 87th Regular Session, As Filed, Article I ERS Rider 16 and Article III TRS Rider 19. [xxx] Tex. Insurance Code § 541.058. [xxxi] Tex. Insurance Code § 1701.061(a)(b). [xxxii] 28 Tex. Admin. Code § 21.4804.