The effect of hospital price transparency in health care markets

Price transparency measures have been recently introduced in the public and private sectors in an effort to increase efficiency within health care markets. Recent implementation of these measures has included publicly available websites which act similarly to search engines in allowing consumers to search for providers. While a great deal of research exists on how greater price transparency has affected different sectors of the economy, few studies have addressed the effects of this intervention in the health care sector. Theoretical models predict that increasing publicly available price information reduces consumer search costs which can encourage consumers to seek lower priced providers. This in turn could increase competition in health care markets and reduce prices. Additionally, if information spurs greater price competition, price dispersion within markets may decrease. Wisconsin hospital discharge data for outpatient procedures are used to examine whether the information provided to consumers shifted hospital utilization away from high priced providers and towards low priced providers following an intervention publishing prices. The results showed that the introduction of publicized hospital prices increased market share for hospitals pricing below the mean price in its market. Decreases in market share were observed among hospitals priced above the mean or at the mean market price relative to hospital procedure pairs priced below the mean. Subgroup analyses demonstrated that patients in fee-for-service plans were more responsive to the information released relative to patients in managed care plans. Unlike market share, price dispersion was not affected by the introduction of price information. The results, though small, suggest that price transparency efforts may induce greater efficiency in the health care sector if coupled with higher cost sharing and quality information.