Evidence from Tiered Hospital Networks on Healthcare Demand under Simple Prices

When customers can easily analyses out-of-pocket costs, they respond to prices for complex healthcare, according to this study. Despite a lack of evidence that price shopping leads to lower-cost care for major medical services, healthcare cost containment measures are increasingly incentivizing it. In the highly simplified pricing information environment of insurance plans with tiered hospital networks, I show that consumers gravitate toward lower-cost hospitals. Within each of at most three hospital tiers, consumers see a single predictable, well-defined pricing that applies to a wide range of services. Partial-equilibrium savings are estimated to reach 8%-17% of baseline spending within three years.