Analyzing Healthcare Price Transparency: Will Patients Shop for Services More Effectively?

Abstract

Recently, the US mandated healthcare price transparency to facilitate easier comparison of healthcare prices. However, the potential effectiveness of this policy is an open question. We use a large-scale health insurance claims dataset to estimate the potential maximum savings from price transparency. We focus on short-term, demand-side estimates, where patients can shop around and switch to cheaper providers. We analyze the set "shoppable" services whose price information must be reported online. Initially, our data points to a large potential for savings due to a large degree of price dispersion. However, when viewed from the consumer shopping perspective, even the most optimistic estimates of potential savings become limited. The reasons are that the location and insurance network of the patient, the structure of healthcare insurance payments, and the information made available by the transparency rule lower patients’ incentive to save. We find that the best-case scenario for patients’ out-of-pocket savings from price - shopping is 3% of the total cost on average. Our analysis suggests that the existing estimates in the literature might be overestimated, as they overlook the consumer shopping perspective. Hence, patients’ potential savings and the demand-side impact of the transparency rule might not be as impactful as initially hoped for.

Keywords: Price transparency, Healthcare, Consumer search, Healthcare shopping

JEL Classification: D04, D12, D83, I11, I18, M31, M38