Clinical and Health Affairs
Price and Quality Transparency
How Effective for Health Care Reform?
By John A. Nyman, Ph.D., and Chia-hsuan W. Li, B.S.P.H.
Abstract
Many in Minnesota and the United States are promoting price and quality transparency as a means for reforming health care. The assumption is that with such information, consumers and providers would be motivated to change their behavior and this would lead to lower costs and higher-quality care. This article attempts to determine the extent to which publicizing information about the cost and quality of medical care does, in fact, improve quality and lower costs, and thus should be included in any reform strategy. The authors reviewed a number of studies and concluded that there is a general lack of empirical evidence on the effect of price transparency on health care costs and that the evidence on the effectiveness of quality transparency is mixed.
Making price and quality transparent to consumers is one of the strategies that many in Minnesota and the United States have proposed as a way to reform the health care system. Increasingly, insurers, hospitals, physicians, and nursing homes are reporting data related to the effectiveness of care, patient safety and satisfaction, as well as the prices they charge for various services. And increasingly, public and private entities are publicizing these data. For example, in Minnesota, MN Community Measurement collects data on hospitals and clinics and publishes comparisons based on the proportion of their patients who receive optimal care for specific conditions.
The idea behind transparency is that publicizing comparative information on price and quality allows consumers to make more informed decisions, which then motivates providers and health plans to compete on the basis of quality and price in order not to lose market share. The desired effect of this policy is high-quality health care delivered at a low price. This article reviews the evidence on quality and price transparency in an attempt to see whether these efforts do what they are intended to do and, thus, make sense as a reform strategy.
Quality Transparency Literature
The most recent systematic review of studies of the extent to which transparency improves quality was conducted by Shekelle et al.1 These authors identified 50 articles on quality transparency that were published between 1986 and 2006 that met their criteria for relevance, methodological rigor, and other attributes. They divided the studies into two groups: 1) those that investigated the degree to which consumers responded to information about the quality of health plans, hospitals, and physicians and 2) those that investigated the extent to which health plans and providers made improvements in response to quality reporting.
They found that consumers sometimes did and sometimes did not change their behavior when presented with quality data. A study by Beaulieu that was included in the review, for example, found that when quality information about various health plan options was given to Harvard employees, those who were enrolled in lower-quality plans were more likely to switch to higher-quality plans.2 However, in a randomized controlled trial, Farley et al. found that consumers who received comparative quality information about health plans did not behave any differently than those who did not.3,4
The review found similarly mixed results in the studies of quality information about hospitals. Mukamel and Mushlin found that those hospitals that were ranked highly by the New York State Cardiac Surgery Reporting System (NYSCSRS) had greater growth in market share;5 but another study of the same program by Hannan et al. did not find evidence of such growth.6 Cutler et al. found that New York hospitals reporting higher mortality rates experienced an initial decline in business following publication of the data, but a year later, the decline was no longer statistically significant.7
The authors of the review found that reporting on the quality of physician services may have a more consistent effect on consumer behavior than reporting on hospital quality. A study by Mukamel et al. found that surgeons who were ranked poorly by the NYSCSRS were less likely to be selected by patients.8 And Jha and Epstein found that surgeons who had the highest mortality rates, according to the NYSCSRS, were likely to cease practicing.9
As for whether publication of quality information leads hospitals and providers to improve the care they offer, the authors concluded that the studies’ findings also were mixed.1 For example, in an analysis of the Cleveland Health Quality Choice program, Baker et al. found that while in-hospital mortality appeared to decline following the publication of such data, post-discharge mortality increased so that there was no net reduction in the
30-day mortality rate.10
Studies too recent to have been included in the Shekelle review found similarly mixed results. For example, Mukamel et al. found that nursing home administrators thought that report card results influenced consumers’ choice of nursing homes and that administrators of poorly scoring facilities were more likely to take action to improve quality.11 A companion study looked at five quality measures before and after implementation of the reporting program to determine whether improvements in the quality of care could be detected.12 The authors were able to find significant reductions in the use of physical restraints and improvements in the way acute pain was treated, but no reduction in the incidence of infections or pressure ulcers, or improvements in activities of daily living scores. Werner et al. compared the care of patients in skilled nursing facilities before and after the implementation of the CMS reporting program along four quality measures—pain, ambulation, delirium, and rehospitalization.13 Again, the findings were mixed: Patients’ pain and ambulation scores improved, but their delirium and rehospitalization scores did not. The authors cautioned that improvements in individual measures may not translate into improved overall quality.
Price Transparency Literature
To our knowledge, few studies of price transparency have been done. Of those that have been published, some show price transparency reduces cost, while others show it does not.
Hibbard and Weeks evaluated the effect of access to physician-fee information on 1) the rate at which doctor-office visits occurred, 2) expenditures for ambulatory care, and 3) the price of an office visit.14 Two groups were studied: one representing 658 state government employees and another consisting of 717 Medicare Part B enrollees. Participants from each group were randomly assigned to an experimental or control group. Members of the experimental group received a listing of the fees charged by local physicians for common procedures. The authors found no statistically significant differences between the intervention and control groups on any of the three measures. The authors attributed the lack of a significant difference to the fact that the subjects in the study did not receive quality information in addition to price information. Because of that, they suggested that some patients may have chosen more costly providers because they used price as an indicator of high-quality service. In a study using data from a recent survey of 686 physicians by the American College of Physician Executives, Weimar found that only 7 percent of respondents said their organization had lowered prices in response to the release of price-comparison information.15
Discussion
What do we make of these findings? The promise of quality transparency as a way to improve care is at this point just that, a promise. The evidence suggests that we know very little about what works and why. Consumers sometimes respond to information about quality and sometimes do not. Health care providers sometimes improve quality in response to reporting and sometimes do not. It would probably be fair to characterize the evidence as suggesting that quality transparency works to improve some measures of quality, but not substantially or consistently.
One issue is whether the few specific measures that have been used to characterize the quality of hospitals and clinics actually reflect the overall quality of the care provided. A measure such as mortality rates for cardiac patients in hospitals that specialize in cardiac care probably does reflect the quality of those facilities fairly well. However, as researchers have cautioned, improvements in specific measures may not characterize broader quality. In addition, once a measure has been designated for reporting, organizations may concentrate on that metric to the exclusion of other aspects of quality. Thus, it is possible that overall quality may actually decline when organizations are focusing on improving in only a few discreet areas. This has not been observed in the empirical studies, but researchers have voiced this concern. The inconsistency of measures used in quality reporting is another problem. Rothberg and colleagues compared five websites that provide public rankings of hospital effectiveness in treating four different diagnoses and found they used different measures of quality, that the definitions they used were inconsistent, and that the reporting periods they studied were different.16 Standardized quality measures would need to be used in order for this type of data to be meaningful.
Finally, quality transparency poses a potential problem if providers and health plans attempt to skew the reported statistics by choosing not to care for some high-risk patients. This has happened in some cases. For example, Dranove et al. found that the hospital report cards used in New York and Pennsylvania were associated with a shift to coronary arterial bypass grafts (CABGs) being performed on healthier patients in an apparent effort to “game” the mortality rates that would be reported.17 In addition, two studies found that cardiac surgeons were less willing to operate on high-risk CABG patients after the implementation of mortality reporting.18,19 And Narins et al. found that 79 percent of New York physicians admitted that public reporting influenced their decisions about whether to perform angioplasty on high-risk patients.20 To the extent that this occurs, quality transparency would lead to access concerns.
Is quality transparency a reform worth promoting? Answering this question would require a rigorous analysis that would determine whether the value of the quality gains exceeds the cost of the quality-reporting program. Such a study has not been undertaken. However, it should be noted that in addition to the economic benefits, quality reporting provides a certain level of empowerment to consumers that may compensate, to some extent, for the cost of the programs. Health care consumers have traditionally been almost completely uninformed regarding the quality of providers. They have evaluated their care based on factors such as bedside manner, personality, and clinic amenities, rather than effectiveness and safety of the care they receive. The availability of quality report cards may change the way patients assess providers and care. If consumers expect to find comparative information and regularly use it, public reporting of such information might help to create a new more rational relationship between patients and providers.
With regard to price, basic market theory asserts that consumers benefit from comparative price information because it fosters competition among providers, thus driving down the price of a product or service. The idea is that if physicians list the prices they charge, patients can use that information to find the highest-quality services for the lowest price. This may be the case in markets where consumers purchase goods and services directly from the firms that produce and sell them.
But in the current health care environment, prices are determined primarily by negotiations between insurers and providers (Figure).21 Consumers have little, if any, influence on these negotiations and, therefore, on prices.
Providers typically set their list prices much higher than what is actually paid to them by health plans. They do this in order to be able to bargain down and thereby take full advantage of any selling power they might have. As a result, list prices have increased dramatically in recent years. Tompkins, Altman, and Eilat found that since the early 1980s, the ratio of hospital charges to payments received has increased from 1.1 to 2.6.22 Further complicating the issue, the discounts that health plans receive from providers are often kept secret by confidentiality clauses in the contracts. Since insured consumers usually pay only a fraction of the negotiated price, would such information be meaningful, much less have an effect on behavior? And in cases where patients have high-deductible health plans and pay a larger portion of the cost through a health savings or reimbursement account, which price would be reported in the first place—the list price or the discounted price?
Still another consideration is how other providers and insurers might use published prices. For example, the posting of prices by orthopedic surgery groups in a market may make it easier for them to collude and set prices as a group. Thus, price transparency may lead to higher prices—the exact opposite of the intended consequence. This has happened in other industries. For example, Albaek, Mollgaard, and Overgaard found that the price of concrete rose by 15 percent to 20 percent when the Danish antitrust authority published concrete transactions.23
Finally, there is the possibility that price transparency could negatively affect patient care. According to Ginsburg, making prices transparent breaks a long-standing societal taboo: prices are not supposed to be a factor in the decisions consumers make about their physicians and in the decisions physicians make about patient care.24 Also, price transparency probably would not work well in cases where the patient is in urgent need of care, does not yet have a diagnosis, and needs services that are provided a la carte rather than bundled. Ginsburg wrote: “It is easy to overstate the magnitude of the potential gains from greater consumer price shopping for medical services. Gathering and understanding price information for medical services is more difficult than for many other services because of the complexity of medical care and the urgency with which many decisions must be made.” 24
Unfortunately, there is simply a lack of direct empirical evidence showing a benefit to price transparency in the health care sector. Moreover, any favorable change in price that is generated by consumers is likely to be small because most pay only a small percentage of the cost of their care. Concentrating on policies designed to affect the price negotiations between insurers and providers, rather than between consumers and providers, would have a potentially greater effect on the actual cost of health care.
Conclusion
A central tenet of economic theory is the notion that the welfare of society is best served when markets are perfectly competitive, and one of the basic requirements of a perfectly competitive market is perfect information. Perfect information means that consumers know the prices and quality of all possible goods and services in a category so they can shop around to find the best value. Businesses know consumers cannot be fooled so they respond by providing high-quality goods and services at a low price.
Efforts to reform health care using price and quality transparency are based on the same concept as perfect competition. However, practice does not appear to follow theory. Health care consumers do not always respond as expected to quality information, and health plans, hospitals, and physicians do not always change their practices when report cards indicate room for improvement. Revealing prices does not always generate competition or lower prices because prices in health care are determined primarily by negotiations between payers and providers and not by consumer demand.
Thus, we have a long way to go before we can conclude that promoting price and quality transparency is an effective mechanism for reforming health care. MM
John Nyman is a health economist and professor in the Division of Health Policy and Management in the University of Minnesota’s School of Public Health. Chia-hsuan Li is a graduate student in the School of Public Health’s program in health services research, policy, and administration.
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