The Empty Price Tag
Why Hospital Price Transparency Has Fallen Short & How Congress Can Make It Right
For most of the twentieth century, Americans could not compare airline fares before booking a flight. Prices were opaque, competition was muted, and consumers largely accepted whatever the market offered. Airline deregulation changed that. The fares themselves did not suddenly become cheaper because Congress passed a law. They became more competitive because prices became visible. Information transformed the market.
Healthcare remains one of the last major sectors of the American economy where that transformation is incomplete.
Five and a half years after the Hospital Price Transparency Rule took effect, Congress has demonstrated that transparency can be required. What it has not yet demonstrated is how to make transparency routine. Hospitals disclose substantially more pricing information than they did before 2021, yet meaningful transparency remains inconsistent. Independent analyses continue to estimate full compliance at only about one-quarter to one-third of hospitals reviewed, while the Department of Health and Human Services Office of Inspector General has identified widespread deficiencies. CMS has imposed civil monetary penalties against only a small fraction of the nearly 6,000 hospitals subject to the rule.
Those numbers matter. But they are symptoms rather than the disease.
The larger issue is whether healthcare should continue operating as the only major sector of the American economy in which purchasers routinely commit to significant expenditures without meaningful access to prices beforehand. In virtually every other market, prices perform an indispensable function. They allow buyers to compare alternatives, reward efficient producers, expose excessive costs, and encourage competition. Healthcare has historically functioned differently. Negotiated reimbursement rates have remained largely invisible to patients, employers, and often even to the purchasers financing coverage for millions of Americans.
Congress attempted to change that dynamic. The Hospital Price Transparency Rule was not designed to regulate what hospitals charge or interfere with negotiations between providers and insurers. It simply recognized that markets cannot function efficiently when one side consistently possesses information the other lacks.
Economist Ronald Coase demonstrated that markets become less efficient when the costs of obtaining information are unnecessarily high. Hidden prices impose exactly those costs. They force buyers to negotiate in the dark, discourage meaningful comparison, and weaken competition before negotiations even begin.
Congress did not create the Securities and Exchange Commission because investors were incapable of buying stocks. It required standardized disclosure because markets work best when participants share access to essential information. Hospital price transparency rests on the same principle.
Hidden prices increase what economists call transaction costs. They force buyers to negotiate in the dark, discourage meaningful comparison, and weaken competitive pressure. Hospital pricing has long operated under precisely those conditions. Economists have a name for that problem, information asymmetry. Decades of research demonstrate its consequences. Markets become less competitive, consumers make poorer decisions, and prices drift further from the discipline that informed purchasing ordinarily provides.
Healthcare has lived with that imbalance for years.
The consequences extend well beyond individual patients trying to estimate the cost of a procedure. Employers purchasing health benefits frequently negotiate contracts without understanding how hospital prices compare across local markets. Researchers studying healthcare spending encounter incomplete or inconsistent pricing information. Antitrust regulators evaluating hospital consolidation often lack the market visibility available in almost every other sector of the economy. Hidden prices do not merely inconvenience consumers; they distort the operation of the marketplace itself.
READ PAPER HERE
