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Consumer Responses to Price Transparency Alone versus Price Transparency Combined with Reference Pricing

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Listed:
  • Christopher Whaley

    (RAND Corporation, Berkeley Center for Health Technology, and School of Public Health, University of California, Berkeley)

  • Timothy Brown

    (Berkeley Center for Health Technology and School of Public Health, University of California, Berkeley)

  • James Robinson

    (Berkeley Center for Health Technology and School of Public Health, University of California, Berkeley)

Abstract

Efforts to spur patient price shopping by providing access to price transparency tools have been met with limited success. One potential reason is the absence of financial incentives. This paper uses data from a large employer that implemented a price transparency platform and subsequently implemented a reference pricing program for laboratory and diagnostic imaging tests. We find no price shopping effects when the price transparency tool is offered alone. However, combining price transparency with reference pricing leads to significant shifts in consumer choice of facility, resulting in a 27 percent reduction in the average price paid per laboratory test and a 13 percent reduction in price paid per imaging test. A variety of public and purchaser initiatives have sought to further the development and adoption of price transparency tools. Our results imply that these tools will capture the attention of consumers, and influence their behavior, only if patients have strong financial incentives to care about prices.

Suggested Citation

  • Christopher Whaley & Timothy Brown & James Robinson, 2019. "Consumer Responses to Price Transparency Alone versus Price Transparency Combined with Reference Pricing," American Journal of Health Economics, MIT Press, vol. 5(2), pages 227-249, Spring.
    • Handle: RePEc:tpr:amjhec:v:5:y:2019:i:2:p:227-249
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    File URL: http://www.mitpressjournals.org/doi/pdf/10.1162/ajhe_a_00118
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    References listed on IDEAS

    as
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    3. Ali Hortaçsu & Chad Syverson, 2004. "Product Differentiation, Search Costs, and Competition in the Mutual Fund Industry: A Case Study of S&P 500 Index Funds," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(2), pages 403-456.
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    5. Haviland, Amelia M. & Eisenberg, Matthew D. & Mehrotra, Ateev & Huckfeldt, Peter J. & Sood, Neeraj, 2016. "Do “Consumer-Directed” health plans bend the cost curve over time?," Journal of Health Economics, Elsevier, vol. 46(C), pages 33-51.
    6. Ethan M. J. Lieber, 2017. "Does It Pay to Know Prices in Health Care?," American Economic Journal: Economic Policy, American Economic Association, vol. 9(1), pages 154-179, February.
    7. Whaley, Christopher M. & Guo, Chaoran & Brown, Timothy T., 2017. "The moral hazard effects of consumer responses to targeted cost-sharing," Journal of Health Economics, Elsevier, vol. 56(C), pages 201-221.
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    Cited by:

    1. Zhang, Angela & Prang, Khic-Houy & Devlin, Nancy & Scott, Anthony & Kelaher, Margaret, 2020. "The impact of price transparency on consumers and providers: A scoping review," Health Policy, Elsevier, vol. 124(8), pages 819-825.
    2. Jinyang Chen & Chaoqun Wang, 2023. "“The reputation premium”: does hospital ranking improvement lead to a higher healthcare spending?," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 24(5), pages 817-830, July.

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    More about this item

    Keywords

    price transparency; reference pricing; price variation;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private

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