What Are the Potential Savings From Steering Patients to Lower-Priced Providers? A Static Analysis

Abstract

OBJECTIVES: Healthcare payers are increasingly using price transparency and benefit design to encourage patient to choose lower-priced providers. We quantify potential savings from shifting patients to lower-priced providers. If there is limited price variation or if higher-priced providers command little market share, savings could be minimal. STUDY DESIGN: Using 2013-2014 commercial claims for 697,381 enrollees in California, we characterized within-market price variation and the relationship between providers' market shares and relative prices for 3 nonemergent, shoppable outpatient services: laboratory tests, imaging services, and durable medical equipment (DME). In a stylized policy simulation that holds provider price and utilization constant, we computed potential savings if patients who visited providers with prices above the median price shifted to the median-priced provider in their geographic market for the same service. METHODS: Observational analyses. RESULTS: Of the service categories examined, laboratory tests had greatest within-market price variation (median coefficient of variation of 100% vs 87% for imaging services and 43% for DME). Roughly half of services 153%, 47%, and 54% for laboratory tests, imaging services, and DME, respectively) were billed by providers with prices above their market median. Shifting these patients to the median-priced provider in their markets could save 42%, 45%, and 15% of spending on laboratory tests, imaging services, and DME, respectively, together representing savings of 11% of total outpatient spending and 7% of the sum of inpatient and outpatient spending. CONCLUSIONS: Steering patients from higher- to lower-priced providers within geographic markets in targeted service categories could generate substantial healthcare savings.