Consumer-driven approaches to address ever-rising health care spending have delivered varying results. Thus far, proposed cures like shopping incentives and reference pricing haven’t played out exactly as hoped—real world findings show pressure on consumers may even backfire, such as when people with chronic conditions like diabetes or heart failure decide to save money by skipping medications, triggering health complications and costly hospitalizations.

Michael E. Chernew, PhD, is the Leonard D. Schaeffer Professor of Health Care Policy and director of the Healthcare Markets and Regulation Lab at Harvard Medical School. He answers three questions for Executive Education about incentivized consumer shopping, consumer choice approaches and a path toward slowing health care spending that takes real-world experience into account.

Interview condensed and edited for clarity.

One approach proposed to rein in health care spending growth uses financial incentives for consumers. What does your research show about consumer shopping for services?

Using data from a large insurer, we looked at where patients went for lower limb MRI scans. We found prices vary dramatically—by a factor of 5—for what is basically the exact same service. Further, we showed patients would often travel further than necessary, passing less expensive places to get the scan done: on average, patients went by six lower-priced vendors.

In the study, the patients weren’t paying full price, so incentives to go to the cheapest place were less than they might be. The point we emphasized is that physicians had a very large influence on where patients went to get MRI scans. Physicians really directed patients. We found very little evidence that patients were concerned about the overall price of the service, and some evidence that they weren’t highly sensitive to the price they paid out of pocket. There are approaches to help them do a better job, like reference pricing. When we charge consumers significantly more, some do switch providers.

Besides price shopping, are there other ways that consumer choice can decrease health care spending?

Health care spending depends on price and utilization. One way for consumers to lower health care spending is to receive care at lower-priced sites. The other thing consumers can do is forgoing or avoiding certain types of wasteful care like unnecessary procedures.

However, I think the ability to make consumerism work in health care is a little bit suspect. It’s challenging for consumers to make a significant dent in health care spending.  When charged more out of pocket patients do use less care and spending goes down. But they reduce the use of high and low value services in about equal proportion, so the challenge is how far we really want to push consumerism in this way.

You are sought after for your advice on spending for health care in a variety of contexts, such as chairing the benefits committee for Harvard University and your work as a former vice chair of the Medicare Payment Advisory Committee. Has this real-world experience suggested any promising paths forward to slow spending growth?

I think there’s much more promise in payment reform, provider incentives and the provider innovation space than in the consumer space. There’s increasing interest in new payment models, such as accountable care organizations (ACOs), where providers are held accountable for the fiscal and clinical outcome for groups of patients. There has been some success with these models. In the commercial sector, we’ve seen those models could save about 10% after several years. In the public sector, they save less, partly because there’s less price variation. So, maybe 5%, and some of those savings get shared.

There’s not one big home run. If there was, people would jump on it. Instead, it’s a continued journey to change the system in ways that result in higher value health care: to encourage the use of services people need, discourage use of unnecessary services and encourage people to get care at lower-priced sites as long as they are high-quality. Sometimes this involves encouraging physicians to refer to certain sites as opposed to others.  

Follow Dr. Chernew on Twitter @Michael_Chernew and join him in our spring 2019 program, Inside the Health Care Ecosystem: Strategic Insights for Business Leaders. View Dr. Chernew's executive education webinar, Beyond the Amazon Healthcare Initiative. 

-Francesca Coltrera