Consider shopping for cereal in the grocery store. Buyers easily know how many grams of sugar and calories are in a serving, as well as how much the box costs, before they get to the checkout line. Yet in the U.S. health care market, this often isn’t the case. Prices are both high and highly variable as well as difficult to observe. I’m an economics professor. In the courses I teach, I expound on the importance of complete and accurate information about prices and quality in well-functioning markets. When buyers and sellers have access to accurate and timely information, the invisible hand can become a powerful force that causes prices to fall to the level of costs and markets to be efficient.
My own research shows that the same procedures, such as MRIs and office visits, vary greatly from one community to the next. But don’t take my word for it. Award winning hip-hop artist Fat Joe recently said, “Well, if I’m going to have a colonoscopy, I want to look up my three favorite hospitals and see what the prices are. … It’s the only thing in the world that you go to and you gotta guess how much you’re paying.”
It doesn’t take a Nobel Prize (or a Grammy) to realize that without price transparency in health care, consumers might suffer. Despite progress in the past few years, that’s precisely where we might end up. Recently adopted rules such as the hospital transparency rule (which requires hospitals to publicize prices they negotiated with insurers) and Transparency in Coverage (which requires group health plans to post prices for their covered items and services) are at risk of getting bogged down by regulatory malaise. The hospital rule suffers from penalties too small to deter facilities from widespread noncompliance. Transparency in Coverage has been described by Sabrina Corlette of Georgetown University as “a mess.” The issues arise from massive file sizes and lack of standardization, which inhibits end-users of these tools from accessing the potential benefits.
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