If patients are not going to make savvy use of price information to choose higher quality, lower cost health-care, some health-care providers, like doctors
and hospitals, will probably respond to price transparency by raising their prices.
Imagine you direct an MRI center in Massachusetts, and the state government requires you and your competitors to post prices for your services. You
consequently find out that the MRI center around the corner from you charges $300 more than you do for their spinal MRIs, and that this increased price
hasn't hurt their business. Imagine, also, that you are convinced that your competitors don't offer higher quality MRI scans than you do -- your MRI
machines are just as new and shiny as theirs; your radiologists and technicians are just as well trained. In that case, if patients are not going to be
price-sensitive, you are going to raise your prices to match your competitor's. Otherwise you are just leaving money on the table.
Consider what happened in Denmark, according to an article published in the New England Journal of Medicine in 2011:
In response to concerns that the highly concentrated suppliers of Ready-Mix Concrete were charging widely varying prices to different buyers, Danish
antitrust authorities began publishing information on actual invoice prices on a quarterly basis, beginning in October 1993. The result was an increase in
average prices of 15-20 percent within a year, as the lower prices in the market rose and the higher prices edged up.
Or consider what happened in New Hampshire after the state began releasing price information on things like MRIs, as part of its health care price
transparency efforts. In the twelve months following that bill, prices hadn't budged at all. This probably happened because there was not enough local competition for the price information to change patient behavior.
Price transparency may also cause prices to rise by reducing health-care providers' willingness to bargain with insurance companies. Currently, the price
any given hospital charges for, say, a hip replacement will vary depending on which insurance company is paying for the service. A given hospital might
have negotiated a higher fee from Aetna than from Blue Cross. Now suppose that legislation required hospitals to make all these negotiated rates public. Do
you think Aetna is going to stand by and pay more money for a hip replacement than Blue Cross? Of course not. It's going to demand the same deal. If price
transparency made such negotiations public, then no hospital in its right mind would offer a discount to one insurance company unless it was willing to
offer that discount to everyone. Price transparency could be a huge impediment to price negotiations.
I witnessed this phenomenon second-hand in the early 90s, when my wife was the director of managed care at Temple University (her job was to negotiate with
managed care companies on Temple's behalf). During that time, two managed care companies in Philadelphia merged, and quickly discovered that they had
negotiated different rates from Temple for different services. The merged company came back to Temple and demanded that the new price of care match
whichever of the two companies had previously negotiated the lower rate for any given service.