The Impact of a Customized Price Transparency Tool on Consumer Behavior

Our paper seeks to understand consumers’ response to an innovative customized price transparency tool in health care.  The tool studied is offered by one of the largest health insurers in the United States and allows the user to specify an illness or disease state and builds a “care path” that includes detailed comparative information on treatment options with different providers. The tool encompasses consumers’ out-of-pocket spending, total spending (out-of-pocket plus plan payments) and provider quality. Importantly, the calculations made by the tool incorporate actual contracted payment rates paid to providers and the specific benefit characteristics of the enrollee (e.g., amount of spending needed to reach the deductible). Moreover, the tool’s built-in episode of care approach allows bundling of all relevant services for a more comprehensive estimate.  The stated goal of the  transparency tool initiative is to give users the opportunity to shop for the best value in their treatment via price and quality transparency.

We estimate the impact of tool availability on individuals’ provider choice, selected utilization outcomes, and costs using an instrumental variables approach.  We distinguish across different “clinical patient cohorts” which we hypothesize to have differential gains from the price transparency tool.  Our cohorts include pregnancy, back pain, knee pain, coronary artery disease, hernia, and individuals who seek annual preventive services. Although these conditions are not exhaustive they represent clinical conditions with important utilization and cost implications.  They include services where utilization rates are highly variable across physicians and potentially over-utilized, since additional treatment is often not associated with improvement in clinical outcomes.  Consequently, our study sheds light on the tool’s impact with respect to changes in provider choice, changes in potentially over- or underutilized services, and potential reductions in health expenditures.  Payers are advancing greater price transparency as a vehicle for reducing health care expenditures.  Our results inform for which patients this is most likely to be the case.