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Price Transparency and Incomplete Contracts in Health Care

58 Pages Posted: 17 Nov 2017  

Wendy Netter Epstein

DePaul University - College of Law; University of Chicago Law School

Date Written: October 15, 2017

Abstract

Market-based health reform solutions dominate the post-Affordable Care Act landscape. Under these plans, competition is supposed to bring down ballooning prices, and patients are to act more like consumers, refusing low-value, medically unnecessary care. Whether one embraces these solutions, one thing is clear: they cannot work absent price transparency—which the U.S. system lacks. To the contrary, the law explicitly enforces open price term contracts between patients and providers.

This Article is the first to synthesize theories of incomplete contracts from traditional law and economics and recent work in the behavioral sciences and to apply these theories to the price transparency problem. It argues that doctrine is out of step with theory, and proposes a contract law solution: an information-forcing penalty default rule. Courts should impose an undesirable default to force the parties to contract around the default. When providers fail to include a price, and it would have been reasonable to do so, courts should fill the gap with a price of $0. Rather than risk not being paid, providers will include a price in the patient contract. Legislative action has been both slow and ineffective in fixing the crucial price transparency problem. At no other time in recent memory has the importance of contract theory been put into such sharp relief and, remarkably, in an area of law that is at the very core of the emerging political economy.

Keywords: Health Law, Health Policy, Price Transparency, Consumer-Based Health Care, Penalty Default, ACA, Affordable Care Act

Suggested Citation

Epstein, Wendy Netter, Price Transparency and Incomplete Contracts in Health Care (October 15, 2017). Emory Law Journal, Vol. 67, No. 1, 2017. Available at SSRN: https://ssrn.com/abstract=3071763

Wendy Netter Epstein (Contact Author)

DePaul University - College of Law ( email )

25 E. Jackson Blvd.
Chicago, IL Cook County 60604-2287
United States

University of Chicago Law School ( email )

1111 E. 60th St.
Chicago, IL 60637
United States

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