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Hospital Price Transparency:Collusion, Search, and Equilibrium
Price
Elena Prager, Maryam Saeedi, and Robert Town
Northwestern, CMU, and UT Austin
Ashecon, June 24, 2019
Elena Prager, Maryam Saeedi, and Robert Town Hospital Price Transparency: Collusion, Search, and Equilibrium Price
Lack of Transparency in Health Care Prices
• With a few exceptions, health care prices are notobservable
• They cannot be ascertained even with substantial effort
• Health policy advocates point to this lack of pricetransparency
◦ An impediment to more price competition◦ Proposed Congressional legislation seeking to require
provider price transparency◦ If patients (or referring physicians) are able to compare the
prices, market forces will drive down provider prices
Elena Prager, Maryam Saeedi, and Robert Town Hospital Price Transparency: Collusion, Search, and Equilibrium Price
Lack of Transparency in Health Care Prices
• With a few exceptions, health care prices are notobservable
• They cannot be ascertained even with substantial effort• Health policy advocates point to this lack of price
transparency
◦ An impediment to more price competition◦ Proposed Congressional legislation seeking to require
provider price transparency◦ If patients (or referring physicians) are able to compare the
prices, market forces will drive down provider prices
Elena Prager, Maryam Saeedi, and Robert Town Hospital Price Transparency: Collusion, Search, and Equilibrium Price
Lack of Transparency in Health Care Prices
• With a few exceptions, health care prices are notobservable
• They cannot be ascertained even with substantial effort• Health policy advocates point to this lack of price
transparency◦ An impediment to more price competition◦ Proposed Congressional legislation seeking to require
provider price transparency◦ If patients (or referring physicians) are able to compare the
prices, market forces will drive down provider prices
Elena Prager, Maryam Saeedi, and Robert Town Hospital Price Transparency: Collusion, Search, and Equilibrium Price
Possible Effects of Increased Price Transparency
However, it may have no or the opposite intended effect:
• It also gives other competing providers and insurersinformation about prices.
◦ Changes in information sets can have complex impacts onequilibrium prices in bargaining settings
◦ Grennan and Swanson, (2018)
• Most insurance policies have very little or no co-insurance◦ Patients have little incentive to consider the prices when
selecting a hospital for care◦ Whaley, (2015), Whaley, Brown, Robinson, (2019)
• Low deductibles/ low coinsurance consumers might useprice information as a proxy for quality
◦ May choose a provider with a higher price◦ Hussey, Wertheimer, and Mehrotra (2013)
Elena Prager, Maryam Saeedi, and Robert Town Hospital Price Transparency: Collusion, Search, and Equilibrium Price
Possible Effects of Increased Price Transparency
However, it may have no or the opposite intended effect:• It also gives other competing providers and insurers
information about prices.◦ Changes in information sets can have complex impacts on
equilibrium prices in bargaining settings◦ Grennan and Swanson, (2018)
• Most insurance policies have very little or no co-insurance◦ Patients have little incentive to consider the prices when
selecting a hospital for care◦ Whaley, (2015), Whaley, Brown, Robinson, (2019)
• Low deductibles/ low coinsurance consumers might useprice information as a proxy for quality
◦ May choose a provider with a higher price◦ Hussey, Wertheimer, and Mehrotra (2013)
Elena Prager, Maryam Saeedi, and Robert Town Hospital Price Transparency: Collusion, Search, and Equilibrium Price
Possible Effects of Increased Price Transparency
However, it may have no or the opposite intended effect:• It also gives other competing providers and insurers
information about prices.◦ Changes in information sets can have complex impacts on
equilibrium prices in bargaining settings◦ Grennan and Swanson, (2018)
• Most insurance policies have very little or no co-insurance◦ Patients have little incentive to consider the prices when
selecting a hospital for care◦ Whaley, (2015), Whaley, Brown, Robinson, (2019)
• Low deductibles/ low coinsurance consumers might useprice information as a proxy for quality
◦ May choose a provider with a higher price◦ Hussey, Wertheimer, and Mehrotra (2013)
Elena Prager, Maryam Saeedi, and Robert Town Hospital Price Transparency: Collusion, Search, and Equilibrium Price
Possible Effects of Increased Price Transparency
However, it may have no or the opposite intended effect:• It also gives other competing providers and insurers
information about prices.◦ Changes in information sets can have complex impacts on
equilibrium prices in bargaining settings◦ Grennan and Swanson, (2018)
• Most insurance policies have very little or no co-insurance◦ Patients have little incentive to consider the prices when
selecting a hospital for care◦ Whaley, (2015), Whaley, Brown, Robinson, (2019)
• Low deductibles/ low coinsurance consumers might useprice information as a proxy for quality
◦ May choose a provider with a higher price◦ Hussey, Wertheimer, and Mehrotra (2013)
Elena Prager, Maryam Saeedi, and Robert Town Hospital Price Transparency: Collusion, Search, and Equilibrium Price
Introduction
• In this paper we have All-Payer Claims Databases(APCDs) from NH and Maine
• NH introduced a public website in 2007◦ price information for a range of common hospital
outpatient procedures◦ hospitals and insurers able to access competitors’ prices
• No contemporaneous regulatory changes for Maine duringthe same period athough they also introduced a pricetransparency portal much later (2015)
Elena Prager, Maryam Saeedi, and Robert Town Hospital Price Transparency: Collusion, Search, and Equilibrium Price
Introduction
• We are interested in seeing the impact of this pricetransparency on different parts of market
• We can see different patients with different levels ofco-insurance/deductibles
• Also, some procedures are available for patients to observedirectly and some are not
• The prices change for different insurance companies whichseems to be a function of their size
• Use these to identify the effect of price transparency
Elena Prager, Maryam Saeedi, and Robert Town Hospital Price Transparency: Collusion, Search, and Equilibrium Price
Relation to Literature
• Grennan & Swanson (2019)• Brown (2016, 2018)• Whaley (2015), Whaley, Brown, Robinson (2019)• Gowrisankaran, Nevo, Town (2014)
Elena Prager, Maryam Saeedi, and Robert Town Hospital Price Transparency: Collusion, Search, and Equilibrium Price
Data
• NH and Maine APCDs (2005-2015)◦ Inpatient and outpatient admissions◦ ID for patients◦ Name of facility, parent insurance company
• NH launched a public website in 2007◦ providers and patients could check prices on certain
outpatient procedures◦ mostly lab work◦ potentially patients can use the website to infer information
on prices of other procedures
• Insurance companies as well as hospitals could alsorequest to get complete pricing data
Elena Prager, Maryam Saeedi, and Robert Town Hospital Price Transparency: Collusion, Search, and Equilibrium Price
The Model
• Following GNT (2014)• Insurance and hospitals negotiate on prices using a
Nash-in-Nash framework• Patients get a health shock• Given characteristics and prices, they choose the facility
Elena Prager, Maryam Saeedi, and Robert Town Hospital Price Transparency: Collusion, Search, and Equilibrium Price
The Model
• The Nash-in-Nash framework• Maximize weighted value added to the hospital and
insurance company• Weights are proportional to relative bargaining power of
hospital/insurance company• We let these weights to vary across years
◦ This will help us understand the effect of the pricetransparency on bargaining power of insurance companiesvs. hospitals
• Also the demand function for the patients can change• This will lead to different willingness to pay from the
insurance company side
Elena Prager, Maryam Saeedi, and Robert Town Hospital Price Transparency: Collusion, Search, and Equilibrium Price
Preliminary Results
• Very concentrated market• Look at the impact of the policy on the top 3 vs top 6
insurance companies• Also the impact on price dispersion for biggest hospitals• The relationship between willingness to pay and prices
Elena Prager, Maryam Saeedi, and Robert Town Hospital Price Transparency: Collusion, Search, and Equilibrium Price
Preliminary Results
• Payer enrollment market shares (from NH insurancemarket reports):
◦ 2007: Anthem 57%, Cigna 23%, Harvard Pilgrim 17%◦ 2008: Anthem 55%, Harvard Pilgrim 25%, Cigna 15%◦ 2009: Anthem 51%, Harvard Pilgrim 25%, Cigna 16%◦ 2010: Anthem 44%, Harvard Pilgrim 24%, Cigna 22%◦ 2011: Anthem 44%, Cigna 25%, Harvard Pilgrim 22%
Elena Prager, Maryam Saeedi, and Robert Town Hospital Price Transparency: Collusion, Search, and Equilibrium Price
Preliminary Results
DRG weighted prices over time, Top 6 payers0
.000
05.0
001
.000
15D
ensi
ty
0 5000 10000 15000 20000Payer-provider pair mean DRG-weighted price
(winsorized at 95th percentile)
2005 20062007 20082009 20102011
Elena Prager, Maryam Saeedi, and Robert Town Hospital Price Transparency: Collusion, Search, and Equilibrium Price
Preliminary Results
DRG weighted prices over time, Top 6 payers0
.000
1.00
02.0
003
0.0
001.
0002
.000
3
0 5000 10000 15000 20000 0 5000 10000 15000 20000 0 5000 10000 15000 20000
1 - Anthem 2 - Cigna 3 - Harvard Pilgrim
4 - Aetna 5 - United 6 - MVP
2005 2006 2007 20082009 2010 2011
Den
sity
Payer-provider pair mean DRG-weighted price(winsorized at 95th percentile)
Graphs by ParentCompanyRank
Elena Prager, Maryam Saeedi, and Robert Town Hospital Price Transparency: Collusion, Search, and Equilibrium Price
Preliminary Results
Average DRG weighted prices over time, Top 3 vs. 4-680
0010
000
1200
014
000
Aver
age
DR
G W
eigh
ted
Pric
es
2004 2006 2008 2010 2012 2014Year
Top 3 4 to 6
Elena Prager, Maryam Saeedi, and Robert Town Hospital Price Transparency: Collusion, Search, and Equilibrium Price
Preliminary Results
Standard Deviation Over Time, Top 3 vs. 4-620
0025
0030
0035
0040
00St
anda
rd D
evia
tion
2004 2006 2008 2010 2012 2014Year
Top 3 4 to 6
Elena Prager, Maryam Saeedi, and Robert Town Hospital Price Transparency: Collusion, Search, and Equilibrium Price
Preliminary Results
Standard Deviation Over DRG Weighted Prices, Top 3 vs. 4-6.2
.25
.3.3
5St
anda
rd D
evia
tion
over
Ave
rage
DR
G P
rice
2004 2006 2008 2010 2012 2014Year
Top 3 4 to 6
Elena Prager, Maryam Saeedi, and Robert Town Hospital Price Transparency: Collusion, Search, and Equilibrium Price
Preliminary Results
Kurtosis, Top 3 vs. 4-62
46
8Ku
rtosi
s
2004 2006 2008 2010 2012 2014Year
Top 3 4 to 6
Elena Prager, Maryam Saeedi, and Robert Town Hospital Price Transparency: Collusion, Search, and Equilibrium Price
Preliminary Results
Average DRG weighted prices over time, Top 380
0010
000
1200
014
000
1600
0M
ean
DR
G W
eigh
ted
Pric
es
2004 2006 2008 2010 2012 2014Year
Anthem CignaHarvard Pilgrim
Elena Prager, Maryam Saeedi, and Robert Town Hospital Price Transparency: Collusion, Search, and Equilibrium Price
Preliminary Results
Standard Deviation Over Time, Top 315
0020
0025
0030
0035
0040
00St
anar
d D
evia
tion
2004 2006 2008 2010 2012 2014Year
Anthem CignaHarvard Pilgrim
Elena Prager, Maryam Saeedi, and Robert Town Hospital Price Transparency: Collusion, Search, and Equilibrium Price
Preliminary Results
Standard Deviation Over DRG Weighted Prices, Top 3.1
5.2
.25
.3.3
5.4
Stan
dard
Dev
iatio
n ov
er M
ean
2004 2006 2008 2010 2012 2014Year
Anthem CignaHarvard Pilgrim
Elena Prager, Maryam Saeedi, and Robert Town Hospital Price Transparency: Collusion, Search, and Equilibrium Price
Preliminary Results
Biggest 3 Hospitals, Average DRG weighted prices over time,Top 6
8000
1000
012
000
1400
016
000
1800
0M
ean
DR
G W
eigh
ted
Pric
e, T
op 6
Insu
ranc
e C
ompa
nies
2004 2006 2008 2010 2012 2014Year
Concortd DartmouthElliot
Elena Prager, Maryam Saeedi, and Robert Town Hospital Price Transparency: Collusion, Search, and Equilibrium Price
Preliminary Results
Biggest 3 Hospitals, Standard Deviation Over Time, Top 610
0020
0030
0040
0050
0060
00St
anda
rd D
evia
tion,
Top
6 In
sura
nce
Com
pani
es
2004 2006 2008 2010 2012 2014Year
Concortd DartmouthElliot
Elena Prager, Maryam Saeedi, and Robert Town Hospital Price Transparency: Collusion, Search, and Equilibrium Price
Preliminary Results
Biggest 3 Hospitals, Standard Deviation Over DRG WeightedPrices, Top 6
.1.2
.3.4
Stan
ard
Dev
iatio
n o
ver M
ean,
Top
6 In
sura
nce
Com
pani
es
2004 2006 2008 2010 2012 2014Year
Concortd DartmouthElliotElena Prager, Maryam Saeedi, and Robert Town Hospital Price Transparency: Collusion, Search, and Equilibrium Price
Willingness to Pay
• Estimate Willingness to Pay• Using the demand estimations• Assuming that insurance companies maximize a weighted
sum of patients’ utility minus cost
Elena Prager, Maryam Saeedi, and Robert Town Hospital Price Transparency: Collusion, Search, and Equilibrium Price
Willingness to Pay and Price
Relationship between WTP and Price, before and after policy
Anthem Cigna Harvard PilgrimWTP 0.44 18.29 -0.8
(0.25) (9.15) (4.16)WTP*Post Dummy 0.83 -13.34 5.48
(0.36) (9.32) (4.33)Year Fixed Effects Y Y Y
Constant 9101 3573 8319(678) (2481) (2782)
R2 0.35 0.59 0.56
Elena Prager, Maryam Saeedi, and Robert Town Hospital Price Transparency: Collusion, Search, and Equilibrium Price
Next Steps
• Bring in outpatient and Maine data. Allows for cleaneridentification
• Estimate full GNT model• Explore estimating a bargaining model with asymmetric
information• Counterfactuals with different benefit designs, market and
information structures.
Elena Prager, Maryam Saeedi, and Robert Town Hospital Price Transparency: Collusion, Search, and Equilibrium Price