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The American Journal of Managed Care July 2019
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What Are the Potential Savings From Steering Patients to Lower-Priced Providers? A Static Analysis
Sunita M. Desai, PhD; Laura A. Hatfield, PhD; Andrew L. Hicks, MS; Michael E. Chernew, PhD; Ateev Mehrotra, MD, MPH; and Anna D. Sinaiko, PhD, MPP
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What Are the Potential Savings From Steering Patients to Lower-Priced Providers? A Static Analysis

Sunita M. Desai, PhD; Laura A. Hatfield, PhD; Andrew L. Hicks, MS; Michael E. Chernew, PhD; Ateev Mehrotra, MD, MPH; and Anna D. Sinaiko, PhD, MPP
Steering patients who visit providers with above-median prices to their market’s median-priced provider would save 42%, 45%, and 15% of laboratory, imaging, and durable medical equipment spending, respectively.

Objectives: Healthcare payers are increasingly using price transparency and benefit design to encourage patients 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 (53%, 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.

Am J Manag Care. 2019;25(7):e204-e210
Takeaway Points
  • Steering patients to lower-priced providers could generate substantial savings in laboratory and imaging services and, to a lesser extent, in durable medical equipment.
  • Potential savings from steering patients to lower-priced providers will be greater for services with higher within-market price variation and for services in which high-priced providers command greater market share.
  • In a simulation that holds provider prices and utilization constant, we find that steering patients to lower-priced providers could result in substantial decreases in outpatient spending.
Prices of healthcare vary substantially, even among providers within the same geographic area,1-4 and price is weakly correlated with quality.5 Therefore, shifting patients to lower-priced providers could yield savings without sacrificing quality. Motivated by this potential, health plans have focused on raising the salience of and exposure to prices for patients through, for example, price transparency initiatives,6 high-deductible health plans, and other benefit designs.7 Motivated by this ongoing policy interest,8,9 we quantify the potential savings from shifting patients from higher- to lower-priced providers in their market.

Prior work estimated that switching patients from higher-priced branded drugs to available generics could save 11% of national drug expenditures.10 We examine 3 services (laboratory tests, imaging services, and durable medical equipment [DME]) that, like drugs, are good candidates for shifting to lower-priced options. They are often used in nonemergent scenarios and do not require patients to switch primary care physicians. Moreover, most patients do not believe that price differences reflect quality differences in healthcare.11

Potential savings depend on the extent of price variation across providers in a market and the share of patients receiving care from higher-priced providers. As an example, if prices vary widely but few patients receive care from higher-priced providers, shifting this small fraction of patients away from these providers may not meaningfully reduce spending. Potential savings would be minimal even if a large share of patients receive care from the higher-priced providers, but the price difference between the higher- and lower-priced providers is small.

We characterize price variation within markets and describe the relationship between providers’ market shares and their relative prices in the market. To estimate potential savings from shifting to lower-priced providers, we simulate savings on laboratory tests, imaging services, and DME if commercially insured patients visiting higher-priced providers instead received care from the median-priced provider in their market for the same service. We estimate partial equilibrium or static effects. In other words, our analysis holds other factors constant and does not incorporate potential responses in provider prices or patient utilization that might be expected over the longer term if a large number of patients in a market were steered toward lower-cost providers. Our analysis illuminates the extent of price variation, the share of spending attributable to high-priced providers in markets, and how that share varies by services and markets.


Study Population and Data

Anthem Blue Cross provided deidentified medical claims and enrollment data for California enrollees in preferred provider organization health plans with deductibles ranging from $250 to $750 between January 1, 2013, and December 31, 2014. To ensure that we observed all spending, we excluded enrollees during any quarters in which they were not continuously enrolled and enrollees with supplemental coverage from another source.

Study Variables

We focused on 3 service categories of outpatient medical services: laboratory tests, imaging, and DME (eAppendix Table 1 [eAppendix available at]). Each Current Procedural Terminology (CPT) code for a test, image, or equipment is referred to as a “service.”

We calculated spending in each service category and for all outpatient care by enrollee and quarter. Quarters began on January 1, April 1, July 1, and October 1 of each year.

The price for a given service was defined as the sum of payments to the provider from the insurer and enrollee (deductible, co-payment, and coinsurance). Professional and facility fees for the same service performed in a hospital outpatient department (HOPD) were summed to a single price. Moreover, for a given beneficiary, payments from multiple claims for the same CPT code and service date were summed. We defined a single price for each provider–service market as the median of the price paid to the provider for that service in a calendar year. In sensitivity analyses, we defined provider prices using the mean and modal prices. To reduce the influence of outliers, we winsorized prices at the 99th percentile of each service by year before computing the provider’s price.12

Markets were defined as 3-digit zip codes; any provider serving enrollees who resided in a given 3-digit zip code was considered a provider in that market. Therefore, providers may have appeared more than once if they served patients in multiple 3-digit zip codes. In a sensitivity analysis, we defined smaller markets using 5-digit zip codes.

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