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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.
Market Share Analysis

Providers with above-median prices had 47%, 53%, and 54% of market share in laboratory tests, imaging, and DME, respectively (Figure 1). Providers with the highest prices had the most market share in imaging (11% of market share for providers in the top decile), followed by laboratory tests (6%) and DME (3%).

Potential Savings From Shifting Patients to Lower-Priced Providers in Their Market

Mean (SD) quarterly spending for laboratory tests per enrollee was $76 ($705) (Table 2). Simulated spending after shifting enrollees to pay the median price was $44 per enrollee per quarter, or 42% savings. For imaging services, mean (SD) spending was $107 ($668) per enrollee; if enrollees at providers above the median instead paid the median price, spending would have been $59 per enrollee, or 45% savings. Mean (SD) DME spending was $20 ($426) per enrollee, and simulations moving enrollees who paid above the median price to the median price would result in spending of $17 per enrollee, implying savings of 15%.

Potential savings were not the same across all geographic markets. Across geographic markets, the potential savings from shifting patients to the median-priced providers ranged from 31% to 55% for laboratory services, 27% to 58% for imaging, and 3% to 23% for DME (Figure 2; eAppendix Table 2). For all 3 service categories, estimated savings were higher by 1 to 4 percentage points in Northern versus Southern California (eAppendix Table 3).

Stratifying by site of service revealed that spending and potential for savings are significantly greater in the HOPD setting compared with freestanding providers. If we assume that patients would stay within the chosen setting, then for laboratory services, shifting patients visiting HOPD providers with above-median prices to the median HOPD price would generate about 64% savings compared with 26% savings among freestanding providers. For imaging services, potential savings were 62% in the HOPD setting compared with 19% among freestanding providers. Potential for savings in DME received in the HOPD setting were 20% compared with 10% in the freestanding office setting. Instead, patients could switch across settings. In simulations, shifting patients visiting providers with above-median prices in the HOPD setting to the median-priced provider in the market, regardless of whether HOPD or freestanding facility, would yield savings of 32%, 38%, and 6% in laboratory tests, imaging, and DME, respectively.

A second set of simulations analyzed the savings from shifting patients to lower-priced providers in smaller increments (Figure 3). Steeper slopes indicate that greater potential savings can come from moving a small number of enrollees from the highest-priced providers. Potential savings increased most steeply for imaging services followed by laboratory tests, driven by high within-market price variation in these service categories. Despite the substantially higher market share for DME providers with above-median prices, the savings from shifting patients to successively lower prices grow slowly relative to laboratory tests and imaging, due to more modest within-market price variation in DME. An extreme scenario, shifting all patients who receive care at providers above the 5th percentile to 5th percentile price in the market, would generate savings of 68% in laboratory tests, 78% in imaging services, and 38% in DME.

Results From Sensitivity Analyses

Altering the market definition from 3- to 5-digit zip code reduced the savings, but they remained substantial at 35% for laboratory tests, 38% for imaging services, and 7% for DME (eAppendix). Excluding laboratory and imaging claims billed on the same day as other outpatient services modestly reduced potential savings for those services to 37% for both. Changing the definition of a provider’s price from median to mean or mode had virtually no effect on estimated savings.


There is widespread interest in decreasing healthcare spending by encouraging patients to choose providers with lower prices. We find that if patients who visited a higher-priced provider switched to a median-priced provider in their market, savings would be 42% in laboratory tests, 45% in imaging services, and 15% in DME. These significant potential savings in imaging and laboratory tests can be explained by both wider within-market price variation and high market share among high-priced providers. The cumulative potential savings from all 3 service categories are equivalent to 11% of total outpatient spending and 7% of total medical spending. California Public Employees’ Retirement System alone could save $15.3 million quarterly from shifting patients to the median-priced providers for these 3 service categories. For context, the $332 in annual savings per patient is much larger than prior estimates of $45 in savings from switching from branded drugs to generics. However, it is important to acknowledge that the 2 estimates are not directly comparable because they are based on different samples and different time periods.10

Although these results imply significant opportunities for savings if payers can steer patients to lower-cost providers, the most effective way to do so remains unclear. Inducing patients to switch to lower-priced providers may be difficult because of patient loyalty to their providers15 and because often patients themselves do not benefit financially from switching to lower-priced providers (eg, once above the deductible).16 Offering patients price transparency tools has, to date, had limited impact in steering patients.9,17,18 On the other hand, alternative benefit designs such as reference-based pricing and tiered provider networks, where patients face much larger out-of-pocket costs if they choose higher-priced providers, have shown early success in shifting patients to lower-priced providers.15,19-22

We focused on laboratory tests, imaging, and DME because choosing a lower-priced provider for these services does not require switching physicians; still, a physician’s recommendation for a laboratory or imaging center may strongly influence the patient’s choice of provider.23 Physicians often recommend that patients get tests within the same health system in part because the results are more easily accessible in electronic health records or because they have financial incentives to do so. If, for these reasons or others, patient “stickiness” to physicians extends to choice of laboratory, imaging, and DME providers, then strategies to lower prices, rather than inducing patients to switch providers, may be more effective in achieving savings. Top-down strategies, such as all-payer rate setting, would also reduce price variation.

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