Will price transparency in health care markets work?

The scholarship suggests that more transparency in health care could backfire, causing prices to rise instead of fall…

“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 ready-mix concrete to disclose their negotiated prices with their customers. Prices for the product then rose 15 percent to 20 percent.

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…

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.

That is all from Margot Sanger-Katz (NYT).  And via Ilya Novak, here is a recent piece by Zach Y. Brown:

This paper examines whether information frictions in the market for medical procedures lead to higher prices and price dispersion in equilibrium. I use detailed data on medical imaging visits to examine the introduction of a state-run website
providing information about out-of-pocket prices for a subset of procedures. Unlike other price transparency tools, the website could be used by all privately insured individuals in the state, potentially generating both demand- and supply-side effects. Exploiting variation across procedures available on the website as well as the timing of the introduction, estimates imply a 3 percent reduction in spending for visits with information available on the website. This is due in part to a shift to lower cost providers, especially for patients paying the highest proportion of costs. Furthermore, supply-side effects play a significant role—there are lower negotiated prices in the long-run, benefiting all insured individuals even if they do not use the website. Supply-side effects reduce price dispersion and are especially relevant when medical providers operate in concentrated markets. The supply-side effects of price transparency are important given that high prices are thought to be the primary cause of high private health care spending in the US.

I hope we learn more about this soon.


I vaguely recall a US antitrust case where the government tried to make the claim that airlines announcing fare increases was a form of tacit per se illegal price fixing (no damages need to be proved in a 'per se' antitrust violation, just the mere fact you tried it is enough to prove you're guilty). Don't recall how the case was resolved, I think the defense won.

There was also a paper a few years ago discussing price caps on credit card interest rates, showing that these price ceilings acted as a kind focal point for collusion. And from what I recall, most research on transparency in the healthcare sector hasn't affected prices much one way or the other.

"Prices don't work" sounds very Soviet to me. The apologetics for our broken system beggars belief. Crap like this is why Trump gets elected.

Yeah is Tyler now claiming that markets work best when prices are unknown? Tyler is good at his job as a mouthpiece propagandist but careful observers see how often he contradicts himself over the years.

Sorry but non disclosed-negotiated prices between buyers and sellers is not in the same universe of soviet style economic coordination without prices....

Before you say start arguing that TC is a low key or unconscious neo-Marxist,you may way want to revise the assumptions within your previous post.

Sorry but Tyler's an unwitting Marxist or appears to be largely in agreement with Marxists for completely other reasons. But the entire strength of the price systems are the prices as signals. Undisclosed prices upend this.


Price is both a signal and an incentive. Incentive for whom is the question here.

Private negotiations about input prices aren’t the same thing as soviet style economic planning without prices.

At the end of the day, every commercial-retail agreement is predicated upon non disclosed rent prices that the public at large is completely ignorant of.

Let’s not try and argue that the commercial real estate market is built upon soviet style economic planning as a result.....

If you read between the lines on a lot of Tyler's posts he either wittingly or unwittingly - most likely unwittingly agrees with a lot of Marxist view points.

What the "scholars" are saying is the helots and serfs can't be allowed to get involved in their health care decisions. It may put them out of business.

"The facts prove me wrong? Too bad for them"


This is straight up gaslighting. Markets don’t work without price transparency (barring pedantic caveats). Listening to the experts on healthcare has gotten us nowhere, because they’re shills. Americans pay way more than anyone else for healthcare. It’s time for that to end. Here’s the hard truth for the medical industry: price transparency, and eventually, Medicare for All, would be a de facto wealth transfer from the entire industry to the American people. That’s why you’re seeing contrived “studies” like this. They are protecting their economic rents. The truth is, the whole value chain is overcompensated. Doctors make too much, as do surgeons, administrators, insurance companies, pharma execs, etc... I don’t care if this is partly a Baumol phenomenon. We have solutions that can constrain it.

The public can only benefit from price disclosure. If transparency results in increased prices, start prosecuting for collusion. If healthcare still isn’t solved by then, drop the Medicare for All bomb (this will happen anyway). Ignore the talking heads beckoning reason.

Intermediary payments from either the government or insurance companies doesn’t fix the problem. If anything it maintains the same problem while simply changing the nature of “who” pays-more government intermediation as opposed to private insurance.

Single payer is more attractive than Medicare for all when it comes to constraining costs. However nobody wants the crappier wait times, crappier treatment success rates as compared to US versions, crappier rates of innovation, possible loss of doctors in an industry that is already suffering from undersupply from the production side etc....

Medicare for All can be single-payer. Assume single-payer is what I meant. We both agree that would reduce prices. As for quality of care, we don’t have notably better outcomes than other developed nations. If we have marginally better outcomes and convenience in slivers of the market, we’re paying out the nose for it. As for wait times, most medical procedures aren’t an emergency. Those who want immediate gratification, even if it’s not medically necessary, can purchase supplemental insurance. Lastly, you mentioned supply. European countries don’t seem to have major supply problems, and if they do, they don’t seem to be complaining.

There was a similar phenomenon here in Israel many years ago. Some legislators concluded that bank executives were getting outrageous salaries, and thought that this was do to excessive influence of the executives on compensation. (This can happen because executives to some extent negotiate with themselves.) They made a rule obligating disclosure of salaries of bank managers. The result was a rapid increase in the salaries of bank executives. No one wanted to be getting less than his colleagues, and for that matter no bank wanted to be paying less than its rivals.

"The reason, scholars concluded, is that there were few manufacturers competing for business."

Seems like we have the beginnings of insight here.

But Tyler's been on the "monopoly/oligopoly competition isn't bad" kick for a while now. All part of his propagandist for big business job. So the root cause here was the oligopoly and not the prices. But hey his masters are better served when he decides markets function better when prices are a mystery rather than pointing to lack of competition as the problem.

"They could collude without the sort of direct communication that would make such behavior illegal."

Collusion only works if there's a fixed number of competitors. The purpose of transparent prices is to get more competitors into the business. Once prices are public, capital should flow into the business if profit margins are high.

On the other hand, it's funny to read an scholar arguing than knowledge corrupts.

Transparency is not a magic bullet because the root causes of the problem have always been elsewhere. Meanwhile there is at least one clear drawback.

There's a simple way to make prices public and minimize the risk of collusion: freeze data for sometime, a year perhaps? Historical prices provide the accountability that the public wants while no intelligent manager is going to set a price based on 1 year old data.

The FTC's antitrust guidelines say it's OK to share historical data. This is the footnote # 6 on the 2015 FTC paper shared above by Prof. Cowen:

"Other things being equal, the sharing of information relating to price, costs, output, or strategic planning is more likely to raise competitive concern than the sharing of information relating to less competitively sensitive variables. Similarly, other things being equal, the sharing of information on current operating and future business plans is more likely to raise concerns than the sharing of historical information."

Yes. Put all pricing on the internet. Make it easy to search. Abolish all regular health insurance. Everybody pays directly for their treatment. Only allow insurance for emergency, accidents, and rare events. Allow markets, personal choice, and competition to work.

That's what my insurance provider did for its members. There would be a 5x difference in prices for an MRI for example.

Repeat as many times until you get it: Politics is the art of the possible. Abolishing health insurance is anywhere in the realm of the possible. Leave utopian schemes to the Marxists.

It’s only impossible according to industry insiders and shills.

It's just ridiculous to imagine that the market is not going to offer health insurance, and that most people aren't going to want it.

What do you think people do when faced with an unpredictable cost with very high variance?

I took it as “abolishing health insurance *as it is today*” Medicare for All would still be a form of pooled health insurance. Putting all Americans in one pool and bargaining with that massive pool would bring the price of healthcare back to Earth. We should also allow for supplemental private insurance for those who go “REEEEE doctor choice, REEEEE wait times” in response to single-payer.

Much simpler solution: any annual patient spending over $300,000 is covered by Medicare. Limit lowered to $150,000 if patient is not obese. $100,000 if patient can bench bodyweight and run sub 7 minute mile. Any lifetime patient spending over $1 million is covered by Medicare. $700,000 if patient not obese. $500,000 if patient can bench body weight and run sub 7 minute mile.

Health insurance income tax exemption eliminated. Only allow premium price based on age, weight, fitness score, and substance abuse tests.

Premiums plummet by 80% overnight.

Who are you to try and decide what people should put in their mouths? Because that’s what you’re doing when you subsidize being thin. There are also people who are genetically predisposed to drinking Big Gulps. Others have thyroid issues. Why do you hate freedom?

So, no health insurance for old people?

Medical economics is different. Today, over 50% of physicians are employed directly or indirectly by hospitals. And hospitals charge higher prices (either because the procedure is conducted at the hospital with higher in-patient rates or because the hospital is less efficient than stand-alone facilities). And physician compensation is based in part on RVUs (relative value units), which are tied to what's most profitable to the hospital. Is a hospital employed physician really going to refer a patient to the stand-alone imaging center down the street?

On the other hand, as deductibles and co-pays have risen, so has patient price sensitivity. I represent stand-alone endoscopy centers. The total facility fee for a scope at the stand-alone facility is often less than the co-pay for the same procedure at the hospital. Good grief! Whether patient price sensitivity is a good thing or a bad thing, however, isn't that simple. For example, during the Great Recession, the income of my cardiology clients dropped, and for some dropped significantly, because heart patients were foregoing their periodic checkups to avoid deductibles and co-pays.

One may recall a few years ago the success in what was called "bending the cost curve" in health care. What wasn't fully understood was that competition was responsible for much of the bend. How so? Many independent (of hospitals) health care facilities were being developed to compete with hospitals, facilities that were much more efficient because they were specialized. But in the past 5-10 years concentration in health care has increased, and increased by a significant amount. As mentioned above, today over 50% of physicians are employed directly or indirectly by hospitals. Moreover, hospitals and other large providers have been gobbling up both independent facilities and physician practices (even private equity is getting into the business of buying physician practices). Why would a physician give up his or her independence by joining a hospital or other large provider? Higher reimbursement rates. Shouldn't a larger provider be more efficient and thus charge lower prices? As I said at the top, health care economics is different: third party payers will pay a higher reimbursement rate to the larger provider because (1) the larger provider controls more patients and (2) it's more efficient (lower cost) for the third party payer to administer the contract for one large provider than many small providers.

As for price collusion, competing physicians are sensitive to the prohibition on sharing price information. For example, if two or more independent practices are considering a merger, they don't share price information (i.e., reimbursement rates under third party payer contracts) and, instead, have an independent third party review their contracts for reimbursement rate differences and to evaluate the effect such differences may have on the merged practices. Would mandatory disclosure of prices result in overall higher or lower prices? Probably higher overall prices because physicians would flock to the provider with the higher reimbursement rates. Like I said, health care economics is different.

"income of my cardiology clients dropped, and for some dropped significantly, because heart patients were foregoing their periodic checkups " That would make an interesting study - to see if there were any health consequences.

"One may recall a few years ago the success in what was called "bending the cost curve" in health care." Bending it in the other direction might have been more helpful.

If prices go up, then new competitors will jump in thereby reducing margin. If prices go down, then it is working as intended. The point is prices MUST become public knowledge to allow all participants to make the decision right for them. I'm not sure why this even needs to be said on a libertarian economics blog. It is so blindingly obvious that even populist stooges like Trump, Sanders, Warren, and AOC understands this.

> If prices go up, then new competitors will jump in thereby reducing margin.

That's why we now have hundreds of thousands of hospitals and universities on every street corner. Prices have been going up much faster than inflation for decades, so all those competitors jumped in.

Oddly enough, prices are still going up as fast as ever. But that's OK. We have a solution that took us decades to figure out and it's blindingly obvious.

Sounds like you're in favor of reducing barriers to entry for hospitals and medical professionals....

+1 Get rid of the bed licensing states do.

Luckily, it's extremely easy to start a health insurance company or expand an existing one into new states, so all the new insurance companies out there competing for customers are helping drive down costs.

Oh wait, no....it's the opposite.

I would think that ending price discrimination would have a stronger and less ambiguous effect on prices than possible collusion. Or perhaps those will work together.

Well if the only price information that is shared in the market is the sales prices is anyone surprised that such a policy would produce a cartel type price rather than a more competitive price?

Change the transparency to production costs (including the firms reservation return) and then see where the output prices move. My guess that will result in lower prices -- it provides transparency on what the competitive price should be not what the top price could be.

Many of these comments reflect a misunderstanding of how prices are set: providers don't set prices, third party payers do.

Sure, rayward, health insurance companies really enjoy having to pay out claims that rise faster than the rate of inflation year after year. Because clearly they aren't in business to make money. {sarcasm}

Insurance companies actually love price inflation. Why haven’t they contained prices? Let’s say they pocket 3% of healthcare spending as profit, and that healthcare spending is 50% higher when we have a broken healthcare system. Now they get 3% of 150%. The slice grows with the pie....Insurance companies don’t want to fix the system. They’re part of the mafia beating it down with a baton.

Providers can set any price they want. 3rd parties basically dictate reimbursements, and really where the rubber meets the road.
Price transparency is not as useful as acceptable reimbursement/payment transparency.
For instance hospitals actually receive about 20-30% of their billing dollars. And stay in business.

First, are these not anecdotes? Some Dutch cement companies did this once a few years ago. If you are ideologically possessed those stories would be attractive.

I have an anecdote that fits my predilections. In the 90's some health economists proposed that increasing health costs were due to increased supply of doctors and service capacity. The provinces were all desperate to cut costs so training of doctors and nurses was cut back. It took a few years for the effects but it almost caused the collapse of the Canadian health care system. Both in law and practice. My conclusion from the matter is to ignore what health economists say.

This is a consequence of the extremely high deductables on health insurance. People are having to pay out of pocket for procedures and are finding the pricing obscure and ridiculous. I'm surprised the hospitals haven't responded themselves. If you are likely to present a bill for $10k to someone giving them an idea what it will cost increases the likelihood of getting paid.

Dutch != Danish.

Yes it does

You guys. I love it when you typify Trumpian dysfunction. For me, this fully encapsulates what's wrong with the modern, social-media, driven age.

You simply don't care what's true. You aren't even going to look it up.
Once you are on board, denying one true thing (Trump is a bad President) you are on board the train, denying that the sky is blue (if a Trump critic says it is).


Shut up you cuck.

Maybe that "yes it does" was just the troll.

I'm sorry I went off, but sometimes comments get ridiculous fun stuff like this.

I'll stubbornly hope that comments can be, in the best circumstances, the group mind eliminating false memes.

They denied that the Moon was Stilton; they denied she was even Dutch;
They denied that Wishes were Horses; they denied that a Pig had Wings;
So we worshipped the Gods of the Market Who promised these beautiful things.

Someone is using my name.


And I'm sorry for not catching on quicker.

Is the reason for demanding transparency for lower prices overall or so people have less shocking bills when they aren't part of an insurance network?

The other difference is that there are two markets here and they're trying to make it clear to people which one they're in, as people may have a real misunderstanding that is off by orders of magnitude of the charges they're incurring? Maybe overall prices rise but the difference between prices for people in a plan and people out of a plan evens out, and that may be something we want.

As a consumer, I'd like to know costs upfront so that I can plan. My wife had knee surgery in April. The provider requested $3000 up front. Fine, we paid it. Then the insurance company "explanation of benefits " forms started rolling in, as well as the bills. It's impossible to know whether the bill from the provider is accurate or justified. We requested and received an accounting of where our $3000 went. But it was the most opaque document you could imagine. One additional payment we made for $135 was entered and deleted from various ledger accounts 21 times! And you get bills from the clinic, from the surgeon, from the PA, from the anesthesiologist, basically from anyone who touches you. It"s very difficult not con conclude that the whole purpose of the system is to confuse, obfuscate, and obscure. Where else does this happen? I go to a car dealer and we negotiate the price of the car and make a deal or don't. Same with a house, or the dishwasher repair person. In health care no one seems to know, or to want the consumer to know, the price or the cost. It's pure insanity.


There, now don't confuse them again.

" Prices for the product then rose 15 percent to 20 percent."
That was the immediate effect. What's happened since?

Tyler only considers second-order effects who it suits him to do so. Otherwise not so much.

And price mechanism in health care is exactly the same as that in concrete. Economists like to have one buyer and one seller. It has nothing to do with reality.

The acronym HMO does not appear on this page!

PPOs and EPOs have too many misaligned incentives. And in those settings, price transparency might indeed leverage those misalignment.

But HMOs are still the answer, right? Pay them to keep you healthy, and allow them the (good, proper) incentive to keep you away from expensive services.

One of the few things almost all Americans can agree on is that they loathe HMOs.

There are two kinds of people. Those happy with Kaiser-Permanente etc, and those who pay extra on the slim hope that "their doctor" is special. So special, that he can outperform an integrated and data driven health maintenance organization.

Note that this might just select for charisma, rather than lowest annual costs.

So, Danish cement may be an example relevant to America's utterly broken and fractured health care system, but in a country like Germany, there are essentially six important 'customers' of health care, and they do not ask the prices of doctors or hospitals involving treatment, they set the prices that doctors or hospitals receive.

Seems to work out, in part because the Krankenkassen are not prmarily motivated by ensuring the highest return on investment to shareholders so as to ensure large bonuses for management, but instead the highest return on investment to those receiving medical treatment.

so anybody know how much the yale medical school charges for an actual exorcism?
we looked it up and there is no drg code for exorcism
Is this for real? its 2019!
are yale psychiatrists actually doing exorcisms on psychiatric patients?

In my view, the big information asymmetry of information in health care is not about prices but about the actual value of the services on offer. The patient generally has little or no idea whether the treatments proposed are useful or not; in truth, the doctor often has little real knowledge about that either. But there is usually a presumption that the value of treatments is very large, often promoted as life and death, when on careful investigation they are often of minimal or even questionable value.

Markets are good at many things, but I cannot imagine how one could construct a market that rationally allocates health services--it's the blind leading the blind all the way down.

A friend likes her knee doctor. He's a surgeon, who recently became head of department at a major teaching hospital. For her those are pluses. He did an arthroscopic "clean up" that in her words "did nothing," and now he's broaching the subject of a knee replacement sometime in the future.

I worry about how his incentives are aligned. And I'm not totally sure that you become head of department at a major teaching hospital by turning away business, or eliminating follow-ups.

It's very often impossible to get a quote for a medical service before you receive it. The reasons sound something like "we can't know how much it will cost until we know what to bill for" or "we need to send it to insurance first." When you push, they make it clear that they will not give you any pricing information whatsoever. One time I even asked for a range, "Are we talking 1,000 or 10,000?" and the person just got grumpy with me.

I feel like there's a lot of useful space between making pricing so transparent that price fixing can happen and making prices transparent enough that customers know the price at all, period, before they purchase. After all, most people who sell most everything can just walk into any store and see what their competitors are charging and it doesn't lead to rampant price fixing.

After more than a decade here it still makes me laugh that Tyler can post a link to something without additional commentary and people automatically assume he supports whatever ideas contained. It’s like some one you don’t know some posts are just up for the comments.

There is no better example of a "captive consumer market" than the health care market. The alternative for not purchasing health care goods and services is being sick or dying. Sectors of the economy which serve captive consumer markets get to price gouge, think baseball stadiums, movie theaters, and of course health care. The consumer does not have a choice in the former because of control of location(inside ticketing), and does not have a choice in the latter because the alternatives are illness and death.

Health care was only privatized and made for-profit during Nixon's administration. The market has had 40+ years to make health care for Americans better, for cheaper and has failed to do so. All these "fixes" are just chipping away at the margin rather than addressing the central issue: the captive consumer market for healthcare is immoral and should not be for-profit.

Health care was only privatized and made for-profit during Nixon's administration.


The market has had 40+ years to make health care for Americans better, for cheaper and has failed to do so.

FALSE - the US healthcare market is one of the most heavily regulated in the world, it features far more government interference than any other health care system.


If healthcare providers bid for our healthcare work, then this might be analogous, but they don't. This Dutch case took an information asymmetry in favor of the consumer, consumers get to see the bids of all the concrete producers while the producers didn't get that information, and eliminated it. Obviously this is going to improve the outcomes for the producers.

In American healthcare consumers don't get to see any of the prices so of course the producers are going to have the advantage.

Just because there is information asymmetry in both cases, doesn't mean the asymmetry favors the same party in each case. Of course, Tyler knows that and is just putting this out there to muddy the waters.

Maybe you have to be part Danish to hang up on the "Dutch" thing, but seriously people, do us Danes a favor.

The Dutch live in the Netherlands

You have paid them the Dutch-geld, and now you will never get rid of them.

Another great example comes from Charles Plott.
Hong, James T., and Charles Plott, “Rate Filing Policies for Inland Water Transportation: An
Experimental Approach,” Bell Journal of Economics, Volume 13 (Spring 1982), pages 1-19.

He runs an experiment confirming that an open price book, in fact, increases the total price level for all customers instead of lowering the price level.

It should be possible, at least in non-emergency cases, to provide at least average or typical prices for a lot of services.

I notice that my dentist, for anything other than a routine cleaning, always provides a written price quote before scheduling any work.

Cataract surgery was quoted (and in fact paid) in advance, after you select the lens you want. They don’t post prices on the internet, but easily could.

On the other hand, in my family in the last year or two, we have had a very urgent retina repair, a scheduled angiogram, and a dramatic ER trip. All they did was ask for insurance cards. Th ER trip was very open ended, but the others could have been ball-parked.

Similarly, we bought probate legal services recently. We asked for an estimate, and got a “probably will not exceed” figure, which looks to be about what we will end up paying.

Price transparency doesn't have to mean disclosing what you charge other customers, just disclosing *a price* before people actually undergo a procedure, period. Hospitals can disclose their "retail" prices, for uninsured customers or the price they pay the insurer for insured customers. They don't have to disclose the discounted deals they make with other insurers.

Congrats, you’ve recreated WAC, which is for drugs.

WAC is meaningless, of course. But it’s a legally defined price which no one pays.

"The scholarship suggests that more transparency in health care could backfire, causing prices to rise instead of fall…"

Some readers might have missed the "could" in the summation. It could lead to collusion, a crime we need to be ever-vigilant against. It's about a particular problem in a particular industry, not general indictment of markets. Get a grip.

What if compliance costs are the factor raising the prices??

I can agree that publishing prices, absent any other changes, might not do much (or do some harm). But if coupled with customers shouldering more of the direct financial burden for their choices, wouldn't price transparency work to reduce demand for a lot of unnecessary medical services?

If you don't think any medical services are "unncessary", you've never had a child with a fever and a doctor that ordered $2,000 in tests just to be safe, and then the child was fine absent any treatment 24 hours later.

There has been other research on this as well, which shows that "price" transparency among few sellers increases coordination, particularly when discounts become discourage because they are publicized.

The other problem is this: what is "price" If an insurer enters into a joint venture with a hospital, and shares profits and costs, the transaction price is fictional, because profit is recouped in the venture.

Expect to see more joint ventures. Expect to see "bundles" with individual ala carte prices high and unmonitored bundled prices effectively lower.

Couple this with any willing provider statutes you have a recipe for higher prices for both hospital and doctor services.

I'd love to see this applied to higher education. Schools accepting federal support must publish last year's book of actual prices paid, by (slightly aggregated) standard test scores and FAFSA expected contribution. Because large institutions are already well-informed about what their peers are doing, whereas prospective students are general uninformed about what they can expect (and better able than patients to make informed choices given better information), the collusion risks might be offset by improved student matching.

Re: Will price transparency in health care markets work?

Absolutely not, since prices, in the context of the unattainability and impossibility of costing and pricing healtcare services and resources accurately rules out the helpfulness of pricing in containing the U.S. healthcare albatross. The only answer is capitated billing, in other words, the HMO approach is all we got, and though better, it doesn't go all the way the address what is the worst thing ever developed by man besides concentration camps and nuclear weapons: the U.S. Healthcare Nonsystem

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