How Consumers Shop for Health Care: Evidence from the LASIK Self-Pay Market

Congressional Testimony on Consumer Shopping in the LASIK Self-Pay Market

On July 18, 2006, Ha T. Tu, a senior health researcher at the Center for Studying Health System Change (HSC), delivered testimony before the U.S. House of Representatives Committee on Ways and Means, Subcommittee on Health, during a hearing on price transparency in health care. HSC, a nonpartisan research organization funded primarily by The Robert Wood Johnson Foundation and affiliated with Mathematica Policy Research, conducted the underlying research with support from the California HealthCare Foundation.

The testimony drew on HSC's Community Tracking Study, which involved national surveys of households and physicians across 60 representative U.S. communities and in-depth site visits to 12 of those communities. The research examined how consumers behave in self-pay health care markets — settings where patients shoulder the full cost of services without insurer-negotiated discounts or provider network restrictions.

Three Central Arguments

Tu's testimony centered on three core points. First, the self-pay market for procedures like LASIK has been frequently cited as a model for the broader health care system, but the research found that these markets have been romanticized without careful investigation into how well they actually serve patients. Without either significant insurer involvement or regulatory oversight, self-pay markets are unlikely to function as a viable template for health care shopping.

Second, insurers wield far greater purchasing power than individual patients can achieve on their own. Health plans negotiate substantial discounts from hospitals and physicians, and their role as consumer agents could become even more effective as they build out more sophisticated benefit structures and informational resources.

Third, while promoting greater consumer awareness of health care costs holds some promise for cost containment without compromising quality, the magnitude of this potential is often overstated by proponents of consumer-directed approaches.

Why LASIK Was Selected for Study

LASIK — laser-assisted in-situ keratomileusis — is an outpatient vision correction surgery where an ophthalmologist reshapes corneal tissue to reduce refractive error. A surgical blade creates a flap in the outer layer of the cornea, which is folded back so a laser can reshape the tissue beneath, after which the flap is repositioned. The procedure takes roughly 10 to 15 minutes per eye and uses only topical anesthetic drops.

Researchers chose LASIK for in-depth analysis because it represents what many consider the most favorable conditions for consumer price shopping in health care. It is elective and non-urgent, giving patients ample time to compare options. Screening exams are not required to get initial price quotes, keeping the cost and time investment of comparison shopping manageable. And the relative ease with which ophthalmologists can enter the market has promoted competition and kept prices in check.

Beyond LASIK, the research also examined self-pay markets for in vitro fertilization (IVF), cosmetic rhinoplasty, and dental crowns to illustrate how additional layers of complexity and reduced transparency affect consumer behavior.

LASIK Market Structure and Pricing Tiers

Industry insiders described the LASIK market as having three pricing segments: discount, mid-range, and premium. Discount providers marketed aggressively on price, handled high volumes of patients, and typically offered minimal contact between the patient and the surgeon before or after the operation.

Premium providers shared strong credentials — research publications, teaching hospital affiliations, participation in clinical trials — that supported higher fees. Some ran low-volume, personalized practices where the surgeon handled all pre- and post-operative care. Others operated high-volume practices with heavy marketing, using optometrists for screening and follow-up exams. Mid-range providers generally resembled premium practices but lacked the top-tier credentials or surgical experience to justify the highest fees.

In 2005, average LASIK pricing stood at roughly $1,680 per eye for conventional procedures and $2,030 for custom wavefront-guided LASIK. Premium providers charged approximately $2,200 for conventional and $2,700 to $2,800 for custom LASIK with IntraLase (blade-free, all-laser flap creation). Discount providers' actual average prices ran $1,100 to $1,200 for conventional and $1,500 to $1,600 for custom LASIK — far above the "few hundred dollars" commonly featured in their advertising. Industry data indicated only about 3 percent of procedures were performed below $1,000 per eye.

Over the decade since LASIK arrived in the U.S. market, the inflation-adjusted price for conventional LASIK declined by nearly 30 percent. Two forces drove this competitiveness: a large pool of ophthalmologists who could enter the market with relative ease on the supply side, and the ability of consumers to obtain price quotes without significant cost or inconvenience on the demand side.

Emerging Technologies: Custom LASIK and IntraLase

Two technological advances were reshaping the LASIK landscape at the time of the testimony. Custom wavefront-guided LASIK used advanced measurement of how each individual eye refracts light and then tailored the laser treatment accordingly. Unlike conventional LASIK, the custom approach could address higher-order aberrations, producing better odds of achieving 20/20 vision or better with fewer visual distortions. Adoption was widespread: 80 percent of providers offered custom LASIK by the time of the study, and the procedure accounted for nearly half of all LASIK surgeries in 2005.

IntraLase, the second innovation, replaced the surgical blade with a laser for creating the corneal flap. Many surgeons believed the laser-created flap was more precise and produced fewer complications. However, market penetration for IntraLase lagged well behind custom LASIK — it was used in only about one in ten procedures in 2005.

How Consumers Actually Shopped for LASIK

Despite the relatively favorable conditions for price comparison, LASIK consumers relied heavily on word-of-mouth referrals from previous patients when selecting a surgeon. This pattern held across all market segments, from discount to premium. Even at practices that invested heavily in advertising, personal recommendations accounted for roughly half of new patients.

Among patients at premium practices, more than half prioritized quality, asking about technology, safety records, and surgical outcomes. A subset of these patients had done extensive independent research before contacting any provider. At discount practices, price dominated decision-making, and patients were far less likely to investigate quality or conduct research.

Industry experts estimated that roughly one in five LASIK consumers shopped intensively on price alone — often by telephone — with this proportion rising considerably among discount providers' clientele. Satisfaction rates across the industry were high, at approximately 90 percent overall. Premium practices with rigorous screening and patient preparation reported satisfaction in the high 90s. Even high-volume discount operations, some of which had faced negative publicity, maintained satisfaction rates in the 80s.

Problems Facing LASIK Consumers

Several issues complicated consumer decision-making in the LASIK market. The lack of consistent service bundling across providers made direct price comparisons difficult. One surgeon's fee might cover a thorough screening exam, the procedure, and several follow-up visits, while a discount provider might charge separately for the screening, include minimal post-operative care, and require full payment for any enhancement surgery. Consumers comparing headline prices were effectively comparing different packages of services.

Misleading advertising was another persistent concern, particularly among discount providers. The Federal Trade Commission (FTC) and multiple state attorneys general had taken enforcement actions against providers who advertised prices that applied to only a tiny fraction of patients, claimed LASIK would eliminate the need for corrective lenses permanently, or charged mandatory fees while advertising free consultations. The FTC's 2003 consent order against LASIK Vision Institute (LVI), for example, addressed findings that consumers were required to pay a $300 nonrefundable deposit before seeing an optometrist, despite advertising free consultations. State actions in Illinois and Florida followed for similar violations in 2005.

Quality variation across providers was another significant challenge. Although LASIK has relatively low complication rates overall — estimated at 5 to 7 percent, with severe vision-threatening complications below 0.01 percent — outcomes varied substantially by provider. Patients with certain characteristics (abnormal corneal topography, large pupils, thin corneas) faced greater risk, and inadequate screening by some high-volume discount providers meant some unsuitable candidates were accepted for surgery. Lower-priced providers were also less likely to invest in newer laser technology that could produce superior results. Enhancement surgery was needed in 5 to 18 percent of procedures, with higher rates among patients who started with greater refractive error.

Lessons from Other Self-Pay Markets

In the IVF, rhinoplasty, and dental crown markets, consumer price shopping was even less common than in LASIK. For IVF and rhinoplasty, most patients selected providers based on personal recommendations or physician referrals. Dental crown patients almost universally stayed with their existing dentist rather than seeking alternatives.

A key barrier in these markets was that accurate pricing required an in-person examination, since costs depended on individual patient characteristics and medical needs. In some markets, providers charged for these screening exams, potentially negating any savings from identifying a lower-cost alternative. Urgency also played a role — dental crown patients might be in pain, and IVF patients often felt time pressure that discouraged extended shopping. Psychological factors mattered as well: surveys showed that most patients trusted their regular dentist but felt anxiety about major dental work, making them reluctant to switch to an unfamiliar provider solely for a cost advantage.

The Role of Insurers in Price Transparency

Much of the policy debate around price transparency had overlooked the central role insurers play as purchasing agents. Even as insurers had lost some leverage with providers in recent years, they still secured substantial discounts from contracted hospitals and physicians — far beyond what individual patients could negotiate.

Insurers were well positioned to support enrollees with high cost-sharing obligations, particularly those in consumer-driven plans. They could analyze complex cost and quality data and distill it into straightforward choices for consumers — for instance, by identifying high-performance provider networks and offering financial incentives to use them. They could also innovate through benefit design, increasing cost sharing for more discretionary services while lowering it for treatments with strong evidence of effectiveness.

When Price Transparency Can Backfire

The testimony raised an important caution: requiring disclosure of negotiated contract prices between insurers and providers could actually lead to higher prices. Antitrust authorities worldwide have recognized that posting contracted prices facilitates collusion in concentrated markets. Even absent explicit coordination, a hospital offering a deeper discount to an insurer would gain less market share if competitors could immediately see and match the concession.

Denmark provided a cautionary example. When the government mandated posting of contracted prices in the ready-mix concrete industry to promote competition, prices instead rose 15 to 20 percent within six months despite falling input costs. While making prices available to uninsured patients or those using out-of-network providers could be beneficial, forcing transparency of insurer-provider contract terms risked undermining the negotiating dynamics that kept costs lower for insured populations.

Realistic Expectations for Consumer Price Shopping

The testimony concluded by urging realism about how much cost savings consumer shopping could actually produce. Several structural features of health care spending limit the reach of patient financial incentives. In any given year, 10 percent of patients account for 70 percent of total spending. Most hospitalized patients exceed their annual deductible and often their out-of-pocket maximum, placing the bulk of their spending beyond any incentive structure. Many health care needs arise urgently, leaving no practical opportunity to comparison shop. And complex illnesses may require significant diagnostic workup before treatment options become clear, by which point patients are unlikely to switch providers.

The value of price information to consumers also varies significantly by benefit design. Flat copayments ($15 per office visit, $100 per hospital day) make price differences among providers irrelevant to the patient. Percentage-based coinsurance gives patients a share of savings from choosing a lower-cost provider, but the incentive disappears once out-of-pocket maximums are reached.

That said, consumers do make some choices in advance that serve as a form of pre-shopping. Selecting a primary care physician determines which specialists are recommended and which hospitals are used. Patients in multi-specialty group practices effectively commit to a network of providers for any future needs, including urgent ones. This advance commitment is the concept underlying the high-performance networks that several large insurers were developing at the time.

The bottom line: consumers becoming more effective health care shoppers has real potential to improve value, but policy makers and advocates needed to temper their expectations and recognize that consumer shopping alone cannot serve as a primary cost-containment strategy.

Sources and Further Reading

Tu, Ha T., and Jessica H. May. "How Consumers Shop for Health Care When They Pay Out of Pocket: Evidence From Selected Self-Pay Markets." Working paper, Center for Studying Health System Change (2006).

Ginsburg, Paul B. "Shopping for Price in Medical Care." Working paper, Center for Studying Health System Change (2006).

Baker, L., et al. "Use of the Internet and E-Mail for Health Care Information: Results From a National Survey." Journal of the American Medical Association, Vol. 289, No. 18 (May 14, 2003).

Albaek, Svend, Peter Mollgaard, and Per B. Overgaard. "Government-Assisted Oligopoly Coordination? A Concrete Case." Journal of Industrial Economics, Vol. 45 (1997): 429-43.

Federal Trade Commission and American Academy of Ophthalmology. "Basik Lasik" consumer brochure.