What price health? Interpreting medical charges

With the healthcare sector moving toward greater price transparency, soon people will be aware of the cost of the medical goods and services they consume — often for the first time. That information will have a profound impact on the way consumers make decisions to acquire medical goods and services and even assess their own risk of contracting diseases, according to new research by Assistant Marketing Professor Adriana Samper.

The healthcare sector is moving toward greater price transparency, which means that soon, people will be aware of the cost of the medical goods and services they consume — often for the first time. States that once allowed medical providers to keep their charges hidden from patients until they appeared on a final bill are beginning to require those costs to be disclosed up front.

That information will have a profound impact on the way consumers make decisions to acquire medical goods and services and, surprisingly, assess their own risk of contracting diseases, according to new research by Assistant Marketing Professor Adriana Samper.

The research by Samper and Janet A. Schwartz, an assistant marketing professor at Tulane University in New Orleans, found that price did indeed influence consumers’ decisions to acquire healthcare products. But, that influence turned out to be more significant than initially thought and much more complex.

While price information could prompt people to consume fewer unnecessary products, the study found it could also cause them to forego essential and sometimes lifesaving care.

“It was not as simple as we anticipated,” Samper stated.

The real cost of healthcare

American consumers often have no idea of the cost of the medical services they receive. It’s one of the few products people consume without the benefit of price-comparison shopping. In the future, though, frequently they will learn in advance the cost of the colonoscopy or hip replacement surgery they are about to receive. For the first time, they will be able to incorporate price into their decisions to acquire medical services and products.

Proponents of greater price transparency assert that it will lead to cost-conscious shopping for healthcare services, facilitating better decisions and increased competition among suppliers. They also argue that price awareness will encourage consumers to reduce consumption of unneeded products and services.

Samper, who joined the W.P. Carey School of Business in 2011, started working on the project in 2009 and submitted it for publication in the fall of 2010. “Price Inferences for Sacred versus Secular Goods: Changing the Price of Medicine Influences Perceived Health Risk,” was accepted in the fall of 2012 and was published in the April 2013 Journal of Consumer Research.

The research provides a better understanding of how consumers interpret price in making healthcare decisions and could lead to more effective marketing of products and better utilization of services by consumers. Price influenced the time consumers spent learning about new healthcare products, their perceived need for the products and their decisions to consume them.

More importantly, price also influenced consumers’ perceived risk of developing the disease, or condition, the product was designed to treat. Specifically, when the cost of a vaccine or medication was low, consumers believed they were more likely to develop the related disease than when the cost was high. This could prompt consumers to skip necessary, sometimes lifesaving, care because they would misinterpret a high price to indicate low risk. Conversely, a low price could cause consumers to infer a greater risk and encourage people to buy products they don’t need.

The study found the influence of price was greatest when presented to consumers in a self-relevant fashion that stressed the benefits to them personally and not to the general population.

The marketing strategy

The findings are significant since healthcare products are often marketed using both individual and societal appeals.

“Marketing will have to be more thoughtful to ensure consumers don’t misinterpret the information about price to their detriment of their own health,” Samper said.

Samper studied neuroscience as an undergraduate and became interested psychology and its influence on healthcare issues. Her graduate-level marketing focus allowed her blend consumer and business perspectives with her interests in psychology and healthcare.

Most of her research projects have involved the influence of psychology on the business of healthcare. She is currently looking at how consumers’ different perceptions about the control they have over their own health affect the way they interpret health messages.

The research on healthcare prices started as a simple look at how price influenced people’s decisions to acquire medical products and services.

“We assumed people would choose lower-priced options when paying out-of-pocket and higher-priced products when the cost was paid for by insurance,” Samper said.

They were surprised when people continued favor low-cost products even if there was no out-of-pocket expense.

“There was something else going on,” Samper added.

Communal pricing

Samper and Schwartz started looking for a reason for the unexpected behavior and found a possible answer in outside research on communal-sharing and pricing principals.

Communal-sharing theories assert that society makes certain vital or so-called “sacred” products affordable and generally available to anyone who needs them.

The researchers reasoned that consumers might view healthcare products as “sacred” and believe that the most needed products would be priced low to make them available to the most people. Conversely, less necessary products would be priced higher, reflecting lower communal demand.

Samper and Schwartz theorized that consumers might also use price to assess their own risk of contracting a medical disease or condition. If consumers perceive a lower cost drug as one for which there is a greater need, they may conclude there is a greater risk of developing the condition the product was developed to treat. The research team also wondered if different approaches in delivering the information about price would change the way people reacted.

Testing theories

To test their theories, Samper and Schwartz first set out to determine if people indeed viewed medical products as “sacred” and priced according to consumer need. The researchers presented 10 different products and services to a sample of 55 respondents. They included five “sacred” or lifesaving products such as vaccines and drug treatments and five secular offerings such as cosmetic pharmaceuticals and computer software. Respondents were then asked whether they believed the cost of each product or service was determined by communal sharing or by market principals.

Most believed that the lifesaving, or sacred products were priced according to communal sharing principals and the more secular goods by market factors, such as supply and demand, cost effectiveness, etc.

“We were surprised how strongly the notion of communal sharing was associated with certain products,” Samper said.

Next Samper and Schwartz looked at whether the price of a medical product influenced consumers’ perception of risk.

They used a hypothetical pharmaceutical skin cream called ProDerma. Roughly half the 111 participants in the study group were informed the cream was a cosmetic product developed to treat age spots while the rest understood it was lifesaving treatment for skin cancer. Half the participants in each group believed the cost of the cream was $25, while the rest were told the price was $250. In all cases participants understood the cost was covered by insurance.

Participants were then asked to assess their perceived likelihood of developing either age spots or skin cancer, depending on which group they fell into.

For the skin cancer cream, price had a significant impact on participants’ perceived health risk. Those evaluating the low cost ($25) cream believed they were more likely to develop skin cancer than those evaluating the high cost ($250) product. Price had no influence on the perceived risk for developing age spots.

The study supported the idea that consumers believe that lifesaving products such as a skin cancer treatment are priced according to communal sharing principals. Accordingly, a low price signaled a greater need for a product which participants interpreted as increased personal risk.

Next, Samper and Schwartz looked at how price might influence consumers’ decisions to use or acquire certain products.

They used the same age spot/skin cancer cream with the $25 and $250 price points. Participants were asked to review information about both products and indicate their perceived likelihood of using it. As with the first test, price had a significant impact on the people evaluating the skin cancer treatment but not the group looking at the cosmetic cream.

Participants evaluating the $25 skin cancer treatment spent significantly more time studying the product information than those evaluating the $250 cream and were much more likely to acquire the product. Again, with the treatment for age spots, there was no distinct influence of price on the acquisition of information and the decision to use the product.

Finally, Samper and Schwartz looked whether different approaches to delivering information about price to consumers changed the way they reacted.

This time they used a hypothetical flu vaccine that was available for $25 or $125 and covered by insurance. The information about the vaccine was framed two different ways to a study group of 81 respondents.

For half the group, the information stressed the individual benefits of getting the vaccine, such as avoiding health complications and missed work. The other half heard about the benefits to society, such as a healthier population and lower overall healthcare costs.

While respondents believed healthcare products were priced according to communal sharing principals, they reacted much more strongly to the individual message than to the communal, or societal, appeal.

“Hopefully the research will lead to a better understanding of the way consumers react to price information in making healthcare decisions,” Samper said. “It could lead to more effective marketing of healthcare products and the more efficient utilization of those products by consumers.”

Bottom line

  • Consumers will increasingly be aware of the cost of the healthcare products they consume.
  • People will use that information to assess their risk of developing diseases and make decisions about acquiring medical products.
  • That information could easily be misinterpreted to the detriment of consumers’ personal health.
  • Marketing will have to be more thoughtful to ensure people correctly assess their health risks and use products more effectively and efficiently.