Medical Price Transparency Law Backfires
Plus, Uber in Saudi Arabia; WSJ suspends skepticism; Biden’s Israeli war casualties
Will forcing health-care providers to publish their prices help lower costs by helping patients shop around? Or will it have an unintended consequence, informing underpriced providers about their costlier peers, and encouraging price increases?
Four economists—Kayleigh Barnes of the Federal Reserve, Sherry Glied and Grace Kim of New York University, and Benjamin Handel of University of California, Berkeley—did an experiment in New York. They randomly released some of the pricing information and withheld some of it. They found prices went up, “consistent with tacit collusion, or conscious parallelism, between providers who realized that they are under-charging relative to their peers.”
They conclude, “Although price transparency is a laudable goal in a healthcare market dominated by information asymmetries, there may be perverse price effects due to supply constraints, the inelastic nature of the demand for healthcare services and opportunity for providers to engage in price-setting. Our results suggest caution about price transparency if physicians are more likely to leverage that information than consumers to set prices.”
The study was released today as a working paper from the National Bureau of Economic Research, titled, “The Impact of Price Transparency in Outpatient Provider Markets.”
This remains a live issue in New York and elsewhere, with politicians passing, and claiming credit for, new price transparency laws based on claims that they will lower prices by helping patients shop around. In June 2023, New York City enacted a new law requiring price transparency for hospitals. “New Yorkers shouldn’t have to break the bank to get the health care they need, and Intro. 844-A will help ensure that New Yorkers have all the information they need to stay healthy and get the care they deserve,” Mayor Adams said of the new law.
“We cannot allow exorbitant health care costs to burden our families, businesses, and city government any longer,” New York City Councilmember Julie Menin said.
It’d be ironic indeed if, instead of pushing prices down through competition, the government’s newly mandated transparency pushes prices up by letting the lower-priced hospitals know more about the uppermost rates that the market will bear. It wouldn’t be the first time that a government regulation has the opposite of its intended effect, making the risk of such an outcome useful as a general-purpose argument against many proposed government regulations.
It’d be fun to see whether, if some of these laws are repealed, price increases slow, or, alternatively, if the providers find some other method than the government-mandated state website—say, a commercial database—to obtain the price information. Any such alternative method would have to be consistent with antitrust law. Maybe the economists will someday be able to conduct a follow-up study.
The Wall Street Journal disappoints on Gaza, West Bank coverage: The Wall Street Journal’s editorials and opinion coverage on the Israel-Hamas war have been so consistently good that the paper overall gets a lot of slack from pro-Israel readers. But the news coverage of Gaza and the West Bank has been really disappointing.
A couple of recent examples should serve to illustrate the point.
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