Clarifying Costs: Can Increased Price Transparency Reduce Healthcare Spending?

49 Pages Posted: 26 Feb 2013 Last revised: 19 Oct 2017

Morgan Muir

Morgan Muir Law; University of California Hastings College of the Law

Stephanie Alessi

Stanford Center for Biomedical Ethics; University of California Hastings College of the Law

Jaime S. King

University of California Hastings College of the Law

Date Written: February 25, 2013

Abstract

As healthcare expenditures continue to climb, politicians, business leaders, and patients avidly search for new methods to reduce healthcare costs. In an eleven-point plan released this summer, a group of the nation’s top healthcare experts listed “full transparency of prices” as one potential solution to reduce healthcare costs. The experts, some of whom helped write the Patient Protection and Affordable Care Act, argued that price transparency would allow consumers to compare prices before choosing a provider or hospital and, consequently, better anticipate their overall costs. In turn, they argued that making price information publicly accessible would also reduce excess healthcare spending by encouraging providers to offer more competitive pricing.

Other health services research, however, suggests that legislative and regulatory efforts to promote price transparency may result in increased healthcare costs depending on the market conditions and the various stakeholders targeted. Consequently, any price transparency initiative must not only make prices transparent, but also account for the differences between markets, either by reducing the economic inefficiencies that keep price transparency from being effective or by targeting only the specific regions where the market would support such an initiative.

This article analyzes whether price transparency initiatives can be effectively used to reduce healthcare costs, and if so, what conditions must be met for them to do so. The features of a well-designed price transparency initiative will vary depending upon the targeted population (patients, employers, providers, or insurers) and the particular features of the target market. We argue that the most effective solutions will mandate disclosure of price and quality information at the appropriate stakeholder levels and, simultaneously, break down provider market leverage where it prevents price transparency from helping consumers. Together, these two elements have the potential to lower healthcare costs. Finally, we present four possible price transparency initiatives that represent a range of possible avenues to promoting effective price transparency including litigation, legislation, regulation, and consumer driven initiatives.

Keywords: price transparency, health care costs, Affordable Care Act

Suggested Citation

Muir, Morgan and Alessi, Stephanie and King, Jaime S., Clarifying Costs: Can Increased Price Transparency Reduce Healthcare Spending? (February 25, 2013). UC Hastings Research Paper No. 38. Available at SSRN: https://ssrn.com/abstract=2224151 or http://dx.doi.org/10.2139/ssrn.2224151

Morgan Muir

Morgan Muir Law ( email )

580 California Street, 16th Floor
San Francisco, CA 94104
United States
4158945626 (Phone)

HOME PAGE: http://morganmuirlaw.com

University of California Hastings College of the Law ( email )

200 McAllister Street
San Francisco, CA 94102
United States

Stephanie Alessi

Stanford Center for Biomedical Ethics ( email )

CA
United States

University of California Hastings College of the Law ( email )

200 McAllister Street
San Francisco, CA 94102
United States

Jaime S. King (Contact Author)

University of California Hastings College of the Law ( email )

200 McAllister Street
San Francisco, CA 94102
United States
415-581-0415 (Phone)

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