Health Policy$ense

Pulling Back the Curtain: How Hospitals Can Learn From Fast Food Restaurants

Recently, the economist Uwe Reinhardt heralded the arrival of price transparency as a "disruptive innovation" in health care. Through modern electronic technology, Reinhardt predicts, open price competition may unleash the powers of the raw market to contain costs and improve quality.

Well, maybe. It may depend on how price information is framed and what providers do with that information. We can learn something from the experience of making the caloric content of fast food "transparent" as a way to stem the rising tide of obesity in the U.S. The idea made sense initially. If people knew how many calories they were consuming, maybe they'd consume less. Many localities passed laws requiring calorie counts on fast-food menus.

Failure of calorie counts
But studies in New York and Philadelphia found that disclosing calorie counts did not have the desired effect. In fact, among some obese adults, calorie consumption actually rose. Researchers cite several possible reasons. Consumers might view more calories as more value, similar to how a high-priced piece of clothing is often thought to be of higher quality than a cheaper one. The information may be difficult to interpret. Is it more meaningful to say a hamburger is 650 calories, or that you'll gain 10 pounds if you eat one hamburger a week for a year? And finally, maybe people already knew that fast food contained a lot of calories and the problem was not knowledge, but self-restraint.

Despite these evaluations, the Affordable Care Act will require that that this policy be implemented nationally in restaurant chains with 20 or more locations, and in doing so has committed millions of dollars to funding the restaurants to change their menus. So how could this have been done differently from the start? Experts believe that a few small tests could have revealed these insights sooner and helped policymakers design more successful strategies to incentivize healthy behavior.

Restaurant and hospital commonalities?
So what do restaurants and hospitals have in common? Well, consumers are not the only ones doing the ordering. Providers spend much of their day in hospitals ordering tests and treatments. They recognize that health care is expensive but they rarely know the actual price of the tests and treatments they order. Some policymakers have called for regulation that would require that prices be displayed in the computerized ordering system. Sound familiar?

We should learn from the experience with fast food calorie counts. Ideas around price transparency must be tested thoroughly before widespread adoption leads to unintended consequences. A few key concepts from behavioral economics could be leveraged to make the implementation more effective. First, prices of tests and treatments should be framed with some context. For example, information could be given in relative terms and displayed numerically or graphically. Rather than showing the price of the brand name medication as $125, the system could show the provider that it is five times more expensive that its generic equivalent.

The power of selection defaults
Or perhaps we should focus less on prices and instead focus on system defaults. McDonald's announced recently that it would start giving customers the choice of a salad, fruit or vegetable as a substitute for french fries in its value meals. But imagine if all meals came with a salad to begin with, and the customer had to ask to substitute french fries. Evidence suggests that changing defaults can be significantly more effective than displaying information. In hospitals, much of the ordering is now done electronically. This presents an opportunity to better design ordering defaults to encourage cost-conscious care.

It's only a matter of time before hospitals are forced to pull back the curtain on their costs. Let's learn from our past experiences. Instead of just showing providers pricing information, let's think about how to frame the information in a way that's more meaningful for decision-makers to interpret. Then price transparency might truly be the "disruptive innovation" that can lead to high-value, cost-conscious care.