Some fear price disclosure could push up prices,
It makes intuitive sense — publish prices negotiated within the health care industry, and consumers will benefit. That’s the argument behind the executive order issued Monday by President Donald Trump that is intended to give patients more information about what health care will cost before they get it.
But the peculiarities of the U.S. health care system, with its longstanding secrecy around negotiated health care prices, mean there is little research on the possible effects of the particular thing the Trump administration wants to do.
That means that scholars examining the question have had to reach far beyond the health care industry, and even beyond the United States for answers about what might happen. Their favorite studies come from markets like Chilean gasoline, Israeli supermarkets and Danish ready-mix concrete.
The scholarship suggests that more transparency in health care could backfire, causing prices to rise instead of fall.
The Danish study, in particular, comes up a lot.
“I don’t know if you have had the misfortune of having health economists tell you about Danish cement,” said Amanda Starc, an associate professor of strategy at the Kellogg School of Management at Northwestern, one of several scholars who mentioned a paper with a punny name: “Government-Assisted Oligopoly Coordination? A Concrete Case.”
“Everybody loves the Danish concrete example!” said Matthew Grennan, an assistant professor of health care management at Wharton, who has studied the effects of price transparency on hospital purchases.
The Danish government, in an effort to improve competition in the early 1990s, required manufacturers of readymix concrete to disclose their negotiated prices with their customers. Prices for the product then rose 15% to 20%.
The reason, scholars concluded, is that there were few manufacturers competing for business. Once companies knew what their competitors were charging, it was easy for them to all raise their prices in concert. They could collude without the sort of direct communication that would make such behavior illegal. It wasn’t easy for new companies to undercut the existing ones, because the material hardens so fast that you can’t ship it far.
“Collusion is going to be easier when there’s a small number of players,” Starc said. That’s the case for hospitals in most markets, making them similar to the Danish manufacturers. “There’s a small number of hospitals, and entry is hard.”
Research on gasoline markets has likewise found that publicizing prices appears to enable collusion in places where there are only a few competitors. But among more plentiful Israeli supermarkets, a database of prices appears to have lowered them.
Scholars at the Federal Trade Commission put out a paper in 2015 cautioning against the kind of price transparency that the president is embracing. Guess what paper showed up in the footnotes?
But it’s not clear how similar Danish ready-mix concrete in the 1990s is to U.S. health care today. The voices arguing for greater price transparency note that the mostcited studies come from pretty far afield.
And many other markets in the U.S. economy do seem to benefit from clear information about prices. Most Americans wouldn’t buy a car — or even an oil change — without knowing the cost. The question is whether the transparency will be more useful to hospitals or to consumers. If you think the answer is consumers, you think transparency will lower prices.
“I don’t know if they think that’s too obvious, or it sounds too high school, and they have a Ph.D.,” said Katy Talento, a health care consultant who worked on the transparency policy while she was the top health policy adviser in the White House Domestic Policy Council. “This is not rocket science.”
The transparency order is part of the administration’s broader push to make health information more publicly accessible. Drug companies must state the price of their drugs in television advertisements now, and hospitals must already post on their websites the prices they charge uninsured customers.
The best available evidence about negotiated health care prices is that they range widely depending on the market, and on the hospital and insurer negotiating the deal. Hospitals tend to offer insurers bulk discounts for sending them customers. So a given insurer may get a low price for services at one hospital, but pay higher prices at its competitors.
Recent work by the Health Care Cost Institute, a group that pools and analyzes insurance claims, found that the highest price for a simple blood test could be 40 times the lowest price for the same test in a given market. Transparency might have the power to tame those wide ranges, and to discourage patients from seeking care at the most expensive places.
Grennan found that offering hospitals the opportunity to see the prices other hospitals paid for medical devices seemed to lead the hospitals that were paying the highest prices to lower them somewhat.
But many economists worry that health care really is a special case, requiring analogies to esoteric markets after particular policy changes. Many patients don’t want to price-shop for their health care because their insurance company pays most of the bills. Most patients also don’t have real control over what health services they are going to receive when they, say, enter a hospital with a heart attack.
When the Trump administration required hospitals to post their list prices for services, several experts and patients noted that navigating such opaque price lists was hard enough that it was not particularly useful to consumers.