Consumer Responses to Reference Pricing for Laboratory Services

Reference pricing programs, which impose targeted cost-sharing for “shoppable” services (non-emergency services where a patient can make a discrete choice of provider separate from other services), have been used by employers and insurers to incentivize patients to receive care from low-priced providers. Consumer responses to reference pricing programs have been evaluated for inpatient and outpatient surgical services (Robinson et al 2013, Robinson et al 2015) but little evidence exists on how consumers respond to reference pricing for lower-cost and more common services. We evaluate the effects of a reference pricing program applied to common diagnostic laboratory tests implemented by a large, self-insured employer in 2011 and expanded 2013.

To evaluate the program, we combine 2009-2013 medical claims data on all covered employees and dependents from the employer with 2009-2013 claims data on enrollees in a large national health plan, which did not implement reference pricing during this period. We use an event-study approach to examine the effects on the program on consumer choice of provider, per-service prices, and both consumer and insurer spending per test.

We find that the program leads to an approximately 20% shift in consumer demand from high-priced to low-priced laboratories. As consumers shift demand, the average price paid per test decreases by 32%. This reduction translates into a $10.8 reduction in total per-test spending. Instead of simply shifting costs to consumers, we find that the total reduction in per-procedure spending is split roughly 40%-60% between consumers and insurers. Average per-test spending by consumers decreases by $4.6 and by $7.1 for the employer. Our results imply that targeted cost-sharing for easily substitutable services spurs consumer price-shopping and leads to changes in consumer purchasing decisions.