Dear Dr. Doshi,
Thank you very much for giving us the opportunity to revise and improve our manuscript. We
have incorporated many of the editors’ and reviewers’ comments and believe the article is
significantly stronger. We have included as many suggestions as possible, though are somewhat
limited by the word count requirements and, at times, competing suggestions from reviewers.
Please see our detailed responses to the reviewers’ suggestions below. Please do not hesitate to
contact us with any questions or requests for clarification.
Thank you for your continued consideration of our work.
Sincerely,
Dhruv Khullar, MD, MPP
Dept. of Healthcare Policy
Dept. of Medicine
Weill Cornell Medical College
EDITORS:
The reviewers have set out a significant number of issues, all of which we think are helpful
and addressable in a revision, and look forward to reading your point-by-point
response. One specific note, however, is we did not agree that the piece necessarily needs
reframing, as Dr. Desai recommends, but we definitely would like you to address her
concern about your “separate and independent treatment of price vs utilization.”
Thank you for these comments. We have addressed Dr. Desai’s concern by expanding our
discussion on the interaction between price and utilization. Specifically, we note that price and
utilization are determined simultaneously and that changes in price have variable effects on
quantity, depending on the service being delivered and other market conditions. We have also
added several citations to support our arguments. The relevant text (page 4, paragraph 2) is
copied below:
“These efforts should recognize that prices and quantities are simultaneously determined: When
prices change, quantities change too. If a service is priced too high or too low relative to its
value, it can generate an excess or shortage of that service.10,11 The effect of price changes on
the volume or quality of care is complex and variable, and should be studied closely as new
pricing models are piloted. Providers may respond to price reductions by increasing volume to
compensate for lost revenue, or by decreasing volume as they shift to more lucrative goods and
services.12,13 We should not, however, assume that the current level of utilization is socially
optimal — there is evidence of both over- and underutilization — and possible utilization
changes should not be a justification for eschewing pricing reform.14”
The introduction felt a bit light on references; we would like to see more citations here.
Thank you for this suggestion. We have added a number of new citations in the revised
manuscript.
REVIEWER #1:
Page 3 line 38 -- The authors might consider pointing out that the reason reducing
utilization might not solve the cost problem is that it is easy for healthcare providers to
raise the prices to compensate for lower volumes.
Thank you for this suggestion. We have added an expanded discussion on the effects of price
changes and utilization, along with citations. The relevant text (page 4, paragraph 2) is copied
below:
“These efforts should recognize that prices and quantities are simultaneously determined: When
prices change, quantities change too. If a service is priced too high or too low relative to its
value, it can generate an excess or shortage of that service.10,11 The effect of price changes on
the volume or quality of care is complex and variable, and should be studied closely as new
pricing models are piloted. Providers may respond to price reductions by increasing volume to
compensate for lost revenue, or by decreasing volume as they shift to more lucrative goods and
services.12,13 We should not, however, assume that the current level of utilization is socially
optimal — there is evidence of both over- and underutilization — and possible utilization
changes should not be a justification for eschewing pricing reform.14”
Page 3 line 52 -- "acquiesce" I think is the wrong word, even if it were spelled correctly.
Isn't the challenge facing payers that they don't have enough market share. As a result, if
one payer stood strong the providers would just work with the other payers? Acquiescence
sounds like they just give up.
Thank you for this comment. We agree and have removed “acquiesce” from the text. We instead
emphasize the market power of commercial insurers versus providers. We have also taken care
to separate the reason for high prices in the private market compared to Medicare, as suggested
later by Reviewer #3. The relevant text (page 3, paragraph 5) is copied below:
“Higher prices across the United States have many root causes, which may differ for public and
private payers. In Medicare, providers generally receive the same administratively set rate with
relatively minor adjustments for geography, case-mix, and quality, but these prices are
influenced by powerful industry lobbies that advocate for higher rates. For private payers, prices
are often driven by their relatively weak bargaining power compared to consolidated providers.8
Private payers may find it difficult to negotiate with or exclude high-priced providers with
considerable brand (e.g., academic medical centers), those in rural areas, and those that have
become increasingly consolidated in the era of delivery system reform.9”
More general comment -- the six strategies pertain to different levels of government and
industry. It would be more helpful for the authors to direct their attention to different
parts of the system. For example, Medicare should revise the fee schedule, states should
consider rate setting, public and private payers should establish bundles, Medicare should
do more competitive bidding, etc. This could go in the table as well.
Thank you for this suggestion. We agree and have added a separate column in the Table, which
describes the policymaking entity (Medicare, states, private payers, etc.)
The discussion of high deductible plans should be revised. The authors should take a
position, rather than talk around all sides of the issue. Is expecting consumers to pay far
more under a high deductible plan promising or not? (Maybe there should be only 5
strategies and this one dismissed.)
Thank you for this comment. We have opted to keep the proposal of high-deductible health plans
and have taken a stronger position on it, arguing that pairing it with reference pricing may be a
path to more effective consumerism. We offer several evidence-based examples of where this has
been successful. The relevant text (page 6, paragraph 2) is copied below:
“This may however be due to suboptimal standardization of services and transparency of prices
— problems potentially mitigated by reforms like bundled payments — and pairing high-
deductible plans with reference pricing may offer a path to more effective consumerism. Through
reference pricing, insurers pay a set price for a drug, technology, or service in a given class, and
the additional cost of higher priced therapies is borne by the consumer. When the California
Public Employees’ Retirement System (CalPERS) introduced reference pricing for orthopedic
surgeries, surgical volume increased by 21% at low-price facilities and decreased by 34% at
high-price facilities without any change in quality or access, and average prices declined across
all facilities.22 Similar effects were found when reference pricing was paired with consumer cost-
sharing for diagnostic colonoscopies.23”
Page 6 line 8. This discussion of bundles seems repetitive.
Thank you for this comment. We have removed the repetitive discussion from the text.
The paper should address the obvious question about pricing solutions -- what about
volume? Reducing fees can be expected to drive up volumes further. This is noted only in
passing as a weakness to bundled payments, but it's totally on point. To solve this issue, the
authors might consider mentioning how pricing interventions intersect with other types of
payment reform.
Thank you for this suggestion. We agree and have included an expanded discussion on how the
price and volume of services intersect. The relevant text (page 4, paragraph 2 and page 6,
paragraph 4) is copied below:
“These efforts should recognize that prices and quantities are simultaneously determined: When
prices change, quantities change too. If a service is priced too high or too low relative to its
value, it can generate an excess or shortage of that service.10,11 The effect of price changes on
the volume or quality of care is complex and variable, and should be studied closely as new
pricing models are piloted. Providers may respond to price reductions by increasing volume to
compensate for lost revenue, or by decreasing volume as they shift to more lucrative goods and
services.12,13 We should not, however, assume that the current level of utilization is socially
optimal — there is evidence of both over- and underutilization — and possible utilization
changes should not be a justification for eschewing pricing reform.14”
“Price changes may have variable effects on utilization and quality, both of which should be
closely evaluated when testing pricing innovations.”
REVIEWER #2
The paper is tackling a very important, mostly ignored, policy topic in the U.S., as correctly
observed by the authors. The first page in which the problem is identified and summarized
is excellent (some quibbles later). It makes a compelling case for the paper. However, I
think the paper needs work, mostly to clarify the purpose and correct some
confusing/contradictory elements.
Thank you for these comments. We have kept much of the first page, which you suggested is
particularly strong. We have tried to clarify the purpose of the paper and improve the areas you
suggest, as detailed below.
Page 3, Line 50: The paper correctly makes the important point that Medicare sets prices,
whereas commercial insurers have to negotiate prices with increasingly powerful providers
who are gaining market power. But at line 50 the paper associates Medicare with
commercial payers, distinguishing both from “Medicaid-like payers.” So readers would be
confused, as I was, about the paper’s viewpoint about Medicare – is it a price setter, which
you emphasized at the outset, or does it “acquiesce” to paying too much, like commercial
payers?
Thank you for this suggestion. We have clarified this issue in the text. We have now taken care to
separate commercial payers and Medicare, describing separately why each may pay high prices.
We have removed the phrase “Medicaid-like” payers.” Please see the relevant text (page 3,
paragraph 5) copied below:
“Higher prices across the United States have many root causes, which may differ for public and
private payers. In Medicare, providers generally receive the same administratively set rate with
relatively minor adjustments for geography, case-mix, and quality, but these prices are
influenced by powerful industry lobbies that advocate for higher rates. For private payers, prices
are often driven by their relatively weak bargaining power compared to consolidated providers.8
Private payers may find it difficult to negotiate with or exclude high-priced providers with
considerable brand (e.g., academic medical centers), those in rural areas, and those that have
become increasingly consolidated in the era of delivery system reform.9”
Having competitive pricing for DME as one of your six avenues of innovation, aside from
being relatively trivial compared to the others you review, is very confusing in what
otherwise is a consideration of approaches to addressing high prices for commercial
insurance. I strongly suggest maintaining the crucial distinction between price setting and
price negotiating and address only opportunities to address commercial insurance price
with pricing innovations.
Thank you for this suggestion. We have made a clearer distinction between private and public
payers in the text, as described above. We have chosen to keep competitive bidding as one of our
six proposals, as we believe it offers an opportunity for a market-based alternative to
administratively imposed price reductions and could be expanded beyond DMEPOS. Moreover,
DMEPOS items for which Medicare has introduced competitive bidding cost the government
more than $11 billion annually. CMS estimates it could save nearly $26 billion from 2013 to
2022 through competitive bidding, suggesting it is a proposal worth considering and possibly
expanding (source: Newman et al, Health Aff, 2017).
You have described both good ideas and what comes across as flawed ideas for innovative
pricing approaches to address high prices. Fundamentally, I can’t tell the purpose of the
paper. You write that you want “to explore six avenues to pricing innovation.” Are these
supposed to represent pricing innovations currently in policy discussion, i.e., a cataloging
of current ideas, good and bad; payment innovations you think are most promising; or
something else? ... In this regard, if you intend a cataloguing of current pricing ideas in
current policy discussions, you have missed a couple that have received important, recent
attention. For example, the paper by Altman and Glied in the Health Affairs, Sept. 2017
Market Concentration issue have suggested placing ceilings on negotiated rates, as a
percentage of Medicare, initially focused on hospitals, as a practical option in lieu of
adopting a full-fledged, all-payer rate setting program like in Maryland.
Thank you for this comment. We have tried to further clarify the purpose of our paper, which is
to offer proposals for pricing reform we believe have promise and should be tested. We have
added a paragraph clarifying this. We have also added the Altman and Glied suggestion as a
closely related alternative to All-Payer Rate Setting. The relevant text (page 4, paragraph 3 and
page 5, paragraph 1) is copied below:
“We propose six avenues to explore health care pricing innovation (Table). While each has
limitations, we believe they offer promising initiatives that should be piloted and evaluated to
understand their effects on health care prices, and relatedly, on quality and utilization. These
proposals are meant to highlight ways in which high prices can be addressed more directly —
distinguishing them from indirect approaches that aim to facilitate competitive health care
markets more broadly, such as aggressive anti-trust enforcement, repeal of some licensing
requirements, and policies that lower barriers to market entry.15 Our proposals exist on a
spectrum from government-driven to market-based approaches and should be of interest to both
public and private payers.”
“A related, more flexible approach would allow for some price variation within states, but limit
privately negotiated prices to a multiple of Medicare rates to curtail outsize bargaining power of
select providers.9”
For context for presenting the direct pricing approaches, I suggest you might explain that
there are a much broader set of policy approaches that attempt to address pricing power,
only indirectly addressing how prices are determined, but that the paper will not discuss in
any detail, as you prefer to explore specific approaches to “pricing innovation.”
Thank you for these suggestions. We have expanded our discussion of where our proposals fit
within the broader landscape of policies aimed at increased health care competition. We note
that our proposals are more direct attempts than other policies that might indirectly lower
prices. We have also included the suggested citation from the National Academy of Social
Insurance you suggest. The relevant text (page 4, paragraph 3) is copied below:
“These proposals are meant to highlight ways in which high prices can be addressed more
directly — distinguishing them from indirect approaches that aim to facilitate competitive health
care markets more broadly, such as aggressive anti-trust enforcement, repeal of some licensing
requirements, and policies that lower barriers to market entry.15”
Finally, I have suggested above that DME bidding in Medicare doesn’t belong in your list.
It is a Medicare-specific proposal and one of many you might have identified to address
Medicare prices. It’s a different topic. I don’t think you should confuse the reader by
contradictory views of whether Medicare pays too much or is a price setter. In contrast,
you creatively included the Medicare Fee Schedule on your list of pricing innovations, not
because it is a Medicare pricing reform opportunity, but rather because private payers
typically use the relative values for their own fee schedules.
Thank you for this suggestion. As noted above, we have decided to keep this proposal as it
accounts for non-trivial Medicare spending and we believe broader, creative use of competitive
bidding may offer a market-based approach to lowering prices. We also believe that having a
clearer distinction between Medicare and private payers, as you suggested and as we have done
above, makes the logic of this proposal easier to follow.
I fail to follow the logic for why you have included bundled payments here. I don’t follow
how bundled payments increases “price and quality competition.” It clearly promotes cost
reduction as you describe, but I don’t follow how any efficiencies necessarily would be
passed back to payers.
Thank you for this comment. We have strengthened the discussion of bundled payments and tried
to clarify how it might lead to lower prices. We have added two studies suggesting that a driver
of lower costs through bundled payments is not reduced utilization, but rather lower prices. The
relevant text (page 5, paragraph 3) is copied below:
“Standardization of bundles is vital for greater competition and meaningful price shopping.
Currently, a different bundle is developed for each payer-provider dyad, reducing the ability of
patients to shop for care, but progress is being made in some regions. One successful example
comes from Arkansas’ Health Care Payment Improvement Initiative (APII) by which private
insurers and Medicaid agreed to pay for some medical episodes using bundled payments. In the
first year of the program, perinatal spending decreased by 3.8%. The decline was driven not by
changes in utilization patterns, such as cesarean section rates or length of stay, but rather by
patients being referred to lower priced facilities.19 Ultimately, if bundled payments are
standardized and well developed, new drugs and technologies could be included in the price of
the care bundle, thereby incentivizing providers to choose whether to invest in them based on
their added value. For example, recent evidence suggests that the largest savings from bundled
care for joint replacements may have resulted from providers purchasing lower-priced
implants.20”
You present high deductibles as a means of promoting consumer shopping, including -- and
especially -- over price. But then you reasonably challenge the concept. I think it a cop-out
to conclude, “it is hard to imagine healthcare pricing reform without engaging patients.”
“Engaging patients” does not address whether or not using high deductibles -- $5000 or
more – is an effective and desirable strategy for restraining prices.
Thank you for this suggestion. We have taken a stronger stance on consumer shopping and
believe it is a worthwhile proposal. Specifically, we argue that consumerism paired with
reference pricing allows for more effective price shopping. We provide evidence of this from
joint replacements and colonoscopies in the CalPERS program. The relevant text (page 6,
paragraph 2) is copied below:
“This may however be due to suboptimal standardization of services and transparency of prices
— problems potentially mitigated by reforms like bundled payments — and pairing high-
deductible plans with reference pricing may offer a path to more effective consumerism. Through
reference pricing, insurers pay a set price for a drug, technology, or service in a given class, and
the additional cost of higher priced therapies is borne by the consumer. When the California
Public Employees’ Retirement System (CalPERS) introduced reference pricing for orthopedic
surgeries, surgical volume increased by 21% at low-price facilities and decreased by 34% at
high-price facilities without any change in quality or access, and average prices declined across
all facilities.22 Similar effects were found when reference pricing was paired with consumer cost-
sharing for diagnostic colonoscopies.23”
Page 4 – line 11-12. I don’t think your suggestion that consolidated providers are
negotiating with fragmented payers is correct. Using antitrust indeces for concentration,
including the HHI, commercial insurance markets are also quite concentrated; often there
is a dominant payer with market shares in the 70-80 percent range. In these markets, it
turns out that the dominant payer does get better prices than in "fragmented" insurance
markets but have no reason to pass back savings to consumers in lower premiums. See
Dafny for documentation.
While we believe there is evidence that consolidated providers increase commercial prices
(including from Dafny NEJM 2014, Dafny NEJM 2015) and providers are relatively
consolidated compared to private payers, we have removed this specific line from the manuscript
for space considerations.
Page 4 – line 23 – the observation that fee schedule rates influence how physicians spend
their time and what specialties they choose is taken directly from Berenson and Goodson. It
needs to be cited here, not just later, for a less important point.
Thank you for this comment. We have included this citation earlier, where suggested.
Page 4 – lines 36-38. Your notion that value-based pricing sets maximums but that
competition should ideally result in even lower prices is an interesting one. But it comes out
of the blue. It is another reason why I think earlier in the paper, you should describe the
broader policy discussion of how to address high prices, that is, the desire to also promote
competition such that the pricing innovations you mention are part of a broader approach
to altering the environment in which high and rising prices flourish.
Thank you for this suggestion. We have included a discussion of where our proposals fit within
the broader policy context of health care prices and competition. The relevant text (page 4,
paragraph 3) is copied below:
“These proposals are meant to highlight ways in which high prices can be addressed more
directly — distinguishing them from indirect approaches that aim to facilitate competitive health
care markets more broadly, such as aggressive anti-trust enforcement, repeal of some licensing
requirements, and policies that lower barriers to market entry.15”
Page 4 – line 54. The more relevant example of regulatory capture is in Maryland itself.
Robert Murray, former long-term staff director of the MD Cost Review Commission in a
few publications has described the periods when the Commission deferred to the interests
of the hospitals, to detrimental impact on spending.
Thank you for this suggestion. We have included a citation from Dr. Murray in the text. We
chose not to further expand our discussion to the Maryland experience because of space
constraints.
REVIEWER #3:
First and foremost, price and utilization are interdependent and intertwined, so a policy is
unlikely to affect one without affecting the other, and therefore, consideration of any policy
should take into account the potential effects on both price and utilization. While the
authors mention this in passing: “These efforts should recognize that prices and quantities
are simultaneously linked…”, this interdependence needs to be core to evaluation of any
policy rather than a side note.
Thank you for this comment. We agree that price and utilization are intertwined and have now
expanded our discussion of this issue. The relevant text (page 4, paragraph 2) is copied below:
“These efforts should recognize that prices and quantities are simultaneously determined: When
prices change, quantities change too. If a service is priced too high or too low relative to its
value, it can generate an excess or shortage of that service.10,11 The effect of price changes on
the volume or quality of care is complex and variable, and should be studied closely as new
pricing models are piloted. Providers may respond to price reductions by increasing volume to
compensate for lost revenue, or by decreasing volume as they shift to more lucrative goods and
services.12,13 We should not, however, assume that the current level of utilization is socially
optimal — there is evidence of both over- and underutilization — and possible utilization
changes should not be a justification for eschewing pricing reform.14”
Second, as mentioned above, it is not clear what previous reforms that have focused on
utilization but not price the authors are referring to. If they decide to stick with this
premise, they should provide examples and then contrast them to the alternate strategies to
argue why in fact they are superior.
Thank you for this comment. A number of delivery system reforms in the Affordable Care Act
attempt to reduce utilization and care fragmentation, including Medicare readmissions penalties,
Accountable Care Organizations, and bundled payments (which, while we argue are a path to
lower prices, have traditionally been understood as a mechanism to integrate and coordinate
care). For example, CMS itself argues that its delivery system reforms aim to “increase care
coordination and quality and reduce redundancies, needless delays, and unwarranted referrals,
thereby saving money and improving the quality of care.” It describes its bundled payment
initiatives as addressing “fragmented care with minimal coordination” and argues that bundles
may reduce the “quantity of services offered” and allow providers to “work closely together
across all specialties and settings.” We have also added a citation to a widely cited paper by
Don Berwick on waste in the U.S. health system. Overall, we agree with Reviewer #2 who states
the current introduction and framing are strong.
Third, for reasons discussed in the first point, the strategies they discuss do not only affect
price but not utilization as claimed. For example, previous literature has shown that
providers respond to price changes, so reforming the Medicare Physician Fee Schedule or
All Payer Rate Setting would likely lead to quantity responses by providers. Bundled
payments are a form of capitation and there is a robust literature on the effects of
capitation on quantity provided. The key question is what are the ramifications of quantity
(and quality for that matter) changes in response to any of these reforms. Will patient care
be worse or social welfare be lower?
Thank you for this comment. We agree that price and utilization are closely related and have
added an expanded discussion to this effect. We also agree that an important question is how
price changes will affect quality of care and social welfare, and state that these issues should be
closely studied as pricing proposals are introduced.
Moreover, the paper would be more unified and also provide a unique perspective, if it
discussed each of the proposed reforms relative to each other. Creating a conceptual
framework to compare the reforms (or some of them) might provide useful context for
readers to understand the strategies. For example, they could compare the proposals on a
spectrum of consumer-focused to provider-focused or on a spectrum of laissez faire to
government driven.
Thank you for this suggestion. While we have chosen to keep the overall framing of the paper, we
agree that thinking of our proposals on a spectrum from government-driven to market-based
provides an interesting structure. We have added a sentence to this effect. The relevant text
(page 4, paragraph 3) is copied below:
“Our proposals exist on a spectrum from government-driven to market-based approaches and
should be of interest to both public and private payers.”
The paper would benefit from a clarification of the setting/audience.
Thank you for this suggestion. We have added a sentence regarding the paper’s intended
audience. The relevant text (page 4, paragraph 3) is copied below:
“Our proposals exist on a spectrum from government-driven to market-based approaches and
should be of interest to both public and private payers.”
Reform Medicare PFS to pay for value and these rates will trickle down to the commercial
markets - How does this square with the authors’ earlier citation of evidence that there is
little correlation between Medicare payment rates and commercial prices?
Thank you for this comment. While there are areas in which private spending does not correlate
with Medicare spending, overall Medicare rates have significant influence on commercial rates.
We have, however, removed the assertion in question to avoid confusion and because it is not
central to our overall argument.
The authors mention that Medicare should pay for value, but what are the complexities of
defining value and putting a dollar figure on value? There is a growing literature and
debate on this complex issue and the authors should acknowledge the complexity of this
proposal.
Thank you for this comment. We agree that the defining value in health care is a complex and
controversial issue. A full discussion of this topic, however, is beyond the scope of this paper.
All payer rate setting - The authors frequently discuss the need for improved competition
in health care delivery markets as a means to reducing prices at other points in the paper,
but isn’t all payer rate setting the most draconian and non-competitive reform possible?
How can the two arguments be reconciled to maintain internal consistency?
Thank you for this comment. We argue that competition is one important consideration when
exploring how to lower prices, but our proposals exist along a spectrum of regulation-driven to
market-based, which we have now made clearer in this revision.
Bundled payments - how do bundled payments increase price and quality competition
among providers? Bundles group multiple services into a single price, but this in itself
won’t unleash price competition.
Thank you for this comment. We have included a more extended discussion of how bundled
payments may promote competition and have included several recent studies suggesting that they
may lower prices. The relevant text (page 5, paragraph 3) is copied below:
“Standardization of bundles is vital for greater competition and meaningful price shopping.
Currently, a different bundle is developed for each payer-provider dyad, reducing the ability of
patients to shop for care, but progress is being made in some regions. One successful example
comes from Arkansas’ Health Care Payment Improvement Initiative (APII) by which private
insurers and Medicaid agreed to pay for some medical episodes using bundled payments. In the
first year of the program, perinatal spending decreased by 3.8%. The decline was driven not by
changes in utilization patterns, such as cesarean section rates or length of stay, but rather by
patients being referred to lower priced facilities.19 Ultimately, if bundled payments are
standardized and well developed, new drugs and technologies could be included in the price of
the care bundle, thereby incentivizing providers to choose whether to invest in them based on
their added value. For example, recent evidence suggests that the largest savings from bundled
care for joint replacements may have resulted from providers purchasing lower-priced
implants.20”
Competitive bidding - The authors argue that competitive bidding should be extended to
Part B drugs, but many of the most expensive drugs are under patent, and so multiple
competitors do not exist for such a bidding program. Moreover, providers already
purchase their own drugs and therefore have incentive to bargain on Part B drugs, so
might this not just add administrative burden without lowering prices?
Thank you for this comment. It is true that some Part B drugs are under patent, but not all.
Furthermore, our argument is to expand competitive bidding more generally, which may include
drugs, but also other health care goods and services. The relevant text (page 6, paragraph 1) is
copied below:
“Competitive bidding could be expanded to other health care goods and services — perhaps by
awarding contracts to suppliers and providers competing on bundles — and might be effective
for reducing prices for expensive Medicare Part B drugs, equipment, and services.”
Greater price shopping through use of high-deductible health plans - The evidence to date
is fairly consistent in suggesting that consumers do not price shop, even in high deductible
plans. To this, the authors say “It is hard to imagine healthcare pricing reforms without
engaging patients”, but they should provide more evidence based arguments.
Thank you for this comment. We agree that our initial characterization of consumer shopping
did not fully make the case for this proposal. In our revision, we have included an expanded
discussion of the issue, and argue that consumer shopping paired with reference pricing may
offer a path forward. We cite several recent studies suggesting this proposal has potential. The
relevant text (page 6, paragraph 2) is copied below:
“This may however be due to suboptimal standardization of services and transparency of prices
— problems potentially mitigated by reforms like bundled payments — and pairing high-
deductible plans with reference pricing may offer a path to more effective consumerism. Through
reference pricing, insurers pay a set price for a drug, technology, or service in a given class, and
the additional cost of higher priced therapies is borne by the consumer. When the California
Public Employees’ Retirement System (CalPERS) introduced reference pricing for orthopedic
surgeries, surgical volume increased by 21% at low-price facilities and decreased by 34% at
high-price facilities without any change in quality or access, and average prices declined across
all facilities.22 Similar effects were found when reference pricing was paired with consumer cost-
sharing for diagnostic colonoscopies.23”
Reference pricing/Pay higher prices for drugs for first 3-5 years and pay higher prices
afterwards if they provide value - Isn’t the latter the goal of the patent system? Wouldn’t
the entry of generics theoretically lead to prices that equal marginal cost after a drug goes
off patent?
Thank you for this comment. We propose that both public and private payers take a more active
role in value-based pricing by updating their payment rates over time. This could theoretically
apply not only to drugs, but also to technologies, devices, and other therapies.
The authors should argue why the current level of prices in health care are problematic
because it is not clear that they are. Theoretically, prices reflects the willingness to pay for
a service. Moreover, who benefits from lowering prices?
Thank you for this suggestion. We note in our introduction that health care prices in the United
States are substantially higher than in other countries, and that they vary considerably across
the country without clear relation to outcomes. It is generally accepted that health care spending
in the United States is high and unsustainable, and we hope to draw attention to pricing
innovation as a mechanism to control spending (while most policy discussion has focused on
waste and utilization). A fuller discussion of whether health care prices are too high is difficult,
given space constraints.
The authors claim that most providers do not know their underlying cost structure or have
incentive to learn it, but even in a market with limited price competition, providers would
still benefit from having lower costs. This claim should be supported more.
Thank you for this suggestion. We have removed this assertion given space constraints and given
this is not central to our overall argument.
Given the focus on price, it should be defined. Specifically, it should be clarified that by
“price”, authors are referring to the sum of the price paid to providers by insurers and the
sum of the copay, deductible and coinsurance.
Thank you for this suggestion. We have now included a definition of price in the introductory
paragraphs.
The last sentence in the second to last paragraph (about bundled payments) is unrelated to
the topic of the paragraph (reference pricing). It seems out of place.
Thank you for this comment. We have removed the sentence in question.
Most of the contents in the table are not discussed or drawn upon in the text. The table and
text should cohere and complement each other more.
Thank you for this comment. We have tried to create closer links between the text and table.
However, given space constraints in the text, we believe the Table provides an opportunity to
provide added detail on some concepts.
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