Self-Pay Markets in Health Care: Consumer Nirvana or Caveat Emptor?

Health Affairs Articles Examine Potential of Consumer Shopping to Slow Costs and Improve Quality

News Release
Feb. 6, 2007

FURTHER INFORMATION, CONTACT:
Alwyn Cassil (202) 264-3484 or acassil@hschange.org

WASHINGTON, DC—Even when patients must pay the full cost of medical care out of pocket, there’s limited comparison shopping for the lowest-cost, highest-quality care, according to a study by researchers at the Center for Studying Health System Change (HSC) published today as a Web Exclusive in the journal Health Affairs.

While markets for self-pay medical procedures, such as LASIK and cosmetic surgery, are often held up as models of consumer engagement that could help rein in spiraling costs and spur improved quality across the health care system, patients undergoing self-pay procedures typically face significant barriers to effective shopping and instead rely on word-of-mouth recommendations to choose providers, according to the study.

Based on interviews with industry experts, providers, professional associations and regulators, the study, "Self-Pay Markets in Health Care: Consumer Nirvana or Caveat Emptor?" takes an in-depth look at the LASIK market and briefly examines self-pay markets for in vitro fertilization (IVF), cosmetic rhinoplasty and dental crowns. In the other self-pay markets studied, consumer shopping was more difficult and less prevalent than in the LASIK market, for reasons ranging from urgency in some cases to the costs of obtaining multiple price quotes.

"Given the lack of consumer shopping in self-pay health care markets, it’s likely that shopping would be even more limited for many services covered by insurance, where the need for care is often more urgent and complex and much of the cost is paid by a third party," said Ha Tu, M.P.A., an HSC senior health researcher and lead author of the study funded by the California HealthCare Foundation (CHCF).

In an accompanying Health Affairs article, "Shopping for Price in Medical Care," also funded by CHCF, HSC President Paul Ginsburg, Ph.D., points out that current efforts to increase price transparency for health care services often downplay "the complexity of decisions about medical care, patients’ dependence on physicians for guidance about appropriate services, and the need for information on quality."

Ginsburg cautions that simply giving consumers a price list of "a la carte" services does little to help them make informed choices about which providers will cost less for an episode of care, let alone which providers offer the best value—or the optimal combination of the lowest cost and highest quality.

The article also points out that insured people have different needs for price information than uninsured people. Insured people need to know what their costs will be under their insurance and benefit structure. And policy makers should be careful not to overlook the role of health plans in negotiating better prices and translating complex price and quality data into usable consumer information that can potentially help steer patients to lower-cost, higher-quality providers, the article notes.

Jill Yegian, director of Research and Evaluation at the California HealthCare Foundation, said, "Unlike shopping for a car or going to a restaurant, there is no easily-obtained ’list price’ or menu of medical services. We commissioned this research to highlight the disconnect between consumers’ growing financial responsibility for medical care and the lack of easily accessible cost and quality information to guide decision-making."

Although consumer motivation to get the best deal should be strong when patients have to shoulder the full cost of care out of pocket, the HSC study on self-pay markets identified many barriers to consumer shopping, even when a procedure is relatively straightforward.

Researchers chose the LASIK market for in-depth analysis largely because the vision correction surgery is widely regarded as the self-pay market with the most favorable conditions for consumer shopping. LASIK is an elective, non-urgent, simple procedure, giving consumers time and ability to shop; screening exams are not required to obtain initial price quotes, keeping the dollar and time costs of shopping reasonable; and easy entry of providers (ophthalmologists) into the market has stimulated competition and kept prices down.

However, LASIK patients still face significant hurdles when shopping—from inconsistent bundling of what’s included in the procedure price to misleading advertising to quality concerns.

• Inconsistent Bundling. The package of services included in LASIK procedure fees varies across providers. For example, one critical factor is whether the cost of enhancement surgery is included in the fee. A price quote that appears to be the best deal but does not include follow-up operations if needed might end up being the highest-price option.
• Misleading Advertising. Misleading offers for free consultations, LASIK for $299 and promises that LASIK would eliminate the need for glasses and contacts for life have all come under scrutiny by state and federal regulators, resulting in enforcement actions and settlements to halt the misleading practices.
• Quality Issues. Many industry observers expressed concern that LASIK is regarded as a commodity by some consumers, leading them to shop only on price, when provider quality may vary considerably. Even when consumers are interested in obtaining quality information, the study finds that it is not easy; those wishing to compare provider quality must gather information on success and complication rates from each LASIK surgeon’s practice.

The Center for Studying Health System Change is a nonpartisan policy research organization committed to providing objective and timely research on the nation’s changing health system to help inform policy makers and contribute to better health care policy. HSC, based in Washington, D.C., is funded principally by The Robert Wood Johnson Foundation and is affiliated with Mathematica Policy Research, Inc.

Celebrating its tenth year, the California HealthCare Foundation (CHCF), based in Oakland, is an independent philanthropy committed to improving California’s health care delivery and financing systems. For more information, visit www.chcf.org.