New Tools Compare Prices for MRIs and Other Services--But Will It Reduce Healthcare Costs?

More and more online tools are becoming available to enable comparison shopping for healthcare provider services. But will people use them?

The Washington Post’s Wonk Blog last week ran a lengthy article about Castlight Health, a Silicon Valley startup that offers an online tool to consumers, employers, and insurers that enables them to comparison shop for medical procedures.

In the Washington DC area, the Castlight tool found that the price of MRIs can vary between $400 and more than $2,100.

Cue shock and outrage!

But these price variations are well known within the healthcare industry. Price data for healthcare services and tools to analyze it have been around in some states for as much as 10 years. Castlight has the slickest interface and appears to be leading the pack with regard to marketing the tools to employers, but others are catching up, notably UnitedHealth, which showed off a demo version of its price comparison tool last year.

The bigger issue is not that such price variations exist between healthcare providers or if there are tools available to allow comparison shopping, but will increasing transparency result in lower overall healthcare prices?

Near the bottom of the Post article are two paragraphs that answer, in part, that question:

Castlight has seen some health providers reduce their fees once the data became public. In one particularly extreme example, a Midwestern hospital cut their charge for outpatient radiation by 60 percent after Castlight made the price public.

But others don’t necessarily see the need to compete on price. The Castlight site also includes information on quality, with rankings of various doctors’ outcomes on given procedures. Some hospitals might feel emboldened to charge more if they can deliver better results.

At least one study, albeit several years old, found that transparency has little or no effect on healthcare provider prices. Early data in New Hampshire published in 2009 suggests that making pricing transparency does prompt those with the highest prices to lower them, but at the same time those with the lowest prices increase them. Overall, however, the New Hampshire study did not find that average prices for procedures decreased.

A more recent study, reported last week, found consumers will actually select more expensively priced procedures when given a choice.

Transparency in itself is not an effective tactic for reducing the cost of healthcare or healthcare spending. Without incentives–for consumers to select the most economical option or for employers and insurers to enforce the most economical option–research has shown we will not see any significant changes.