Congressional Testimony on LASIK Prices

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HEARING
BEFORE THE
SUBCOMMITTEE ON HEALTH
OF THE
COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
SECOND SESSION
JULY 18, 2006
SERIAL 109-78

STATEMENT OF HA T. TU, SENIOR HEALTH RESEARCHER, CENTER FOR STUDYING HEALTH SYSTEM CHANGE--

Ms. TU. Good morning, Madam Chairman, Representative Stark and members of the Subcommittee. Thank you for the invitation to testify.

My name the Ha Tu. I am a senior health researcher at the Center for Studying Health System Change, HSC. The HSC is an independent, nonpartisan health policy research organization funded principally by the Robert Wood Johnson Foundation and affiliated with Mathematical Policy Research.

With funding from the California HealthCare Foundation, HSC has conducted research on consumer shopping for health services, focusing on self‑pay services such as LASIK. These self‑pay markets are often held up as models for all health care markets. However, our research findings suggest that even for the simplest self‑pay services there are important barriers to price and quality transparency and the extent of consumer shopping is quite limited.

That is a point I would like to briefly summarize, our findings related to LASIK. These findings are laid out in greater detail in my written testimony.

LASIK is a procedure that offers ideal conditions for price shopping for several reasons.

First, LASIK is an elective and nonurgent procedure so that consumers have the time and the ability to comparison shop. Second, consumers can gather initial price quotes for LASIK by phone at no cost and little inconvenience. In this respect, LASIK is unlike many other services that require in‑person exams before any price quotes can be given. Finally, easy entry into this market by ophthalmologists has helped to encourage price competition.

Our research found that competition has helped to keep prices down in the LASIK market. The average price for the conventional LASIK procedure has declined by nearly 30 percent in the past decade after adjustment for inflation. However, this price decline has been much less steep than a casual observer would expect, given the pervasive ads that most of us have seen for LASIK for $299. In fact, the average price of LASIK in the past year was about $2,000 per eye; and only about 3 percent of LASIK procedures actually cost less than a thousand dollars an eye.

We find that most consumers, in choosing a LASIK provider, rely heavily on word‑of‑mouth recommendation from previous patients. This is true of consumers in all price segments of the market. While consumers of premium-priced practices tend to focus on quality and consumers of discount-priced practices tend to focus on price, word of mouth is the primary way consumers choose the LASIK surgeon whatever the price segment of the market.

We identify three major challenges facing LASIK consumers.

First, LASIK providers don't package their services in any consistent way when they quote their fees to consumers; and, as a result of this, it is extremely difficult for consumers to make accurate apples‑to‑apples price comparisons across providers.

Second, some LASIK providers have engaged in misleading advertising by making price and quality claims that regulators have found to be unfounded. Both Federal and State regulators have taken action against misleading advertisers, but violations have persisted in this industry, and regulators acknowledge that they don't have the resources to monitor all of the violations.

The final challenge for LASIK shoppers is that substantial quality differences do exist across providers. There are large variations in how thoroughly providers screen patients, what kind of technology they use, and what their outcomes are, including success rates and complication rates. These variations are all evidence that LASIK is not a commodity, although it is often talked about as a commodity.

To summarize, we find there are barriers to price and quality transparency in the LASIK market, and these help to limit shopping.

When we turn to other self‑pay services such as in‑vitro fertilization, cosmetic rhinoplasty and dental crowns, we find even less shopping taking place in those markets because of additional barriers such as the cost and effort involved in getting price quotes, and in some IVF and dental crown cases, there is urgency involved which precludes comparison shopping.