Steering Patients
In order to understand the implications of reference pricing, the drivers of demand for colonoscopies has to be understood. Colonoscopies are used to detect cancers and precancerous polyps, and they are a recommended technique for this, being that the physician can examine the colon visually. Other techniques are not as effective. The reality is that polyps and even early stage colon cancer are often asymptomatic, but of course early detection has the best outcomes for patients. For this reason, the most effective early detection technique and for the ability to detect and remove precancerous polyps, the colonoscopy is recommended (ACA, 2015). Other techniques exist, but they are not perfect substitutes for a colonoscopy -- the fecal test is not as effective as a colonoscopy and is therefore not a substitute for one. That said, patients do not always make their decisions based on medical data, but economic analysis assumes that patients are rational.
With a $500 reference price, patients would be oriented to seek out the lowest-cost provider. While the lowest quartile...
Likely, these low-cost colonoscopies are available in areas where factor costs such as labor are low, or where payers demand low-cost medical services. Assuming perfectly even distribution of low cost colonoscopy providers, however, patients are likely to seek out these providers where possible, in order to eliminate out-of-pocket costs.
However, the average price is much higher, and consumers may choose to pay the added cost. Indeed, a rational consumer would pay the added cost, given that colon cancer costs a lot more than a colonoscopy. Most patients at
risk for this are older, so are more likely to be at a point in their career where they can afford a few extra hundred dollars for the average-priced colonoscopy. On the whole, the $500 reference price would orient the market (both consumers and providers) to colonoscopies that cost closer to that price. However, while the reference price should help to skew the market towards lower prices, providers that are priced substantially higher than $1,000 are likely catering to a market that can reasonably afford the higher cost for better care, and will not see the expense as anything more than a good investment in future health. Only in the middle of the market -- people…
