Will mandating price transparency for surgeries actually lower prices to consumers? originally appeared on Quora, the place to gain and share knowledge, empowering people to learn from others and better understand the world. You can follow Quora on Twitter, Facebook, and Google Plus.

Will mandating price transparency for surgeries actually lower prices to consumers?

Only in the US could such a question be asked. And only in the US is it impossible to answer.

Transparency - symmetry of information - is essential for proper functioning of a free market system. It enables buyers to compare the costs and benefits of different options and choose accordingly. It works great for things that we understand and are familiar with - like blue jeans or houses or big screen TVs.

Sellers - who always have more information than buyers - do their best to disguise costs. Think about choosing a cell phone plan and trying to figure out which one will actually cost less in practice. It’s not so easy. Even if you know the cost, you may not know the value - you end up paying for things that you don’t actually need or use.

The farther we go up the complexity chain, the easier it is for sellers to use informational asymmetry as a tool to increase profits. When this asymmetry is coupled to a product that is often bought in a state of emotional distress, then buyers are pretty much helpless.

We are not so good at assessing value for phones and cars, and we are even worse when it comes to medical procedures. I don’t doubt that the vast majority of surgeons set their billing schedules in good faith, but it’s just human nature to rationalize that what’s good for one’s self is good for all.

Besides the asymmetry-of-information problem, other factors limit the utility of transparency in surgical pricing:

1. Most American insurance plans feature a deductible cost. After this limit is reached - and nearly all surgeries exceed it - patients are responsible for only a small fraction of the remaining cost. Their incentive to shop for lower costs is diluted accordingly.

2. Hospitals are very good at cost shifting. Not at shifting costs between Medicare/Medicaid and private insurers, which has been overstated [1], but between departments. Transparency in surgery alone could lead to lower nominal prices for surgery, but higher prices for associated care, resulting in no net benefit.

3. Hospitals will likely take a page from pharma’s playbook and start offering patients “coupons” against their deductibles, and then jack up the total cost of procedures. The patient pays less, but the insurance company (and thus everyone else) pays more [2].

That said, increased transparency for surgeries is almost surely a good idea. It will have some positive effect for some procedures. Lasik or other surgeries which are not urgent and have good non-surgical alternatives are more likely to enter into a classic free-market virtuous circle.

More importantly, transparency in surgery will create a norm. Hospital pricing schemes are convoluted and opaque and enable abuse of patients and payors. This state of affairs is so common and universal that we think it is natural. It is not. Transparency in surgical prices will create an expectation of transparency for other services, and it will become harder and harder for hospitals to wriggle out of any kind of accountability. This is a change that is long overdue.

Footnotes

[1] How Much Do Hospitals Cost Shift? A Review of the Evidence

[2] Prescription-Drug Coupons — No Such Thing as a Free Lunch | NEJM

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