The Only Prescription Is Transparency: The Effect of Charge-Price-Transparency Regulation on Healthcare Prices

Abstract

We examine the effect of charge-price-transparency regulation (PTR)—a common policy solution intended to curb rising healthcare costs—on hospitals’ prices. We find that, although PTR does not affect payments or consumer search, it does cause hospitals to reduce charges by approximately 5%. The reputational costs of perceived overcharging appear to be one impetus for the reduction in charges, suggesting that certain stakeholders who are able to impose costs on hospitals are unaware that hospitals can decouple charges from payments. The ineffectiveness of PTR policies in reducing payments and the apparent inability of some stakeholders to realize this fact could explain why charge-transparency policies have been widely adopted with little opposition. Overall, our findings provide a cautionary note—transparency regulation focusing on an indicator that can be decoupled from the construct of interest might placate some stakeholders without actually solving the underlying problem. This paper was accepted by Suraj Srinivasan, accounting.