Price transparency is an obvious driver of effective market dynamics: the more buyers and sellers know about the actual cost factors underlying the prices of competing products and services, the better equipped they will be to compare their relative value (or lack thereof) and make informed choices, driving down prices in the long run. That’s the basic principle outlined by Brian Blase in a new white paper for Galen advocating more price transparency in the U.S. healthcare system, long notorious for its opaque cost structures as well as — surprise, surprise — spiraling prices due to stunted markets, monopolistic practices and middlemen.
- Blase concedes from the outset that price transparency hasn’t delivered major savings in U.S. healthcare costs so far, but points out that is due in part to simple lack of awareness among consumers, as well as insurers and the employers who pay for healthcare for most Americans.
- The biggest potential benefits from increased transparency may well accrue to employers, coming under multiple cost and operational pressures, as their ability to offer attractive healthcare benefits becomes more and more important to recruitment and retention in a tight labor market.
- In conjunction, Blase argues, consumer-facing price comparison tools and greater employer leverage can deliver major cost savings. He cites the example of Safeway, which combined price transparency with reference pricing for local healthcare providers to cut lab costs by 27% for employees.
- Reference pricing for healthcare providers at the state level (enabled by greater transparency) helped California lower costs for state employees by 17-21% earlier this decade. Furthermore, the price competition helped spread the benefits to parts of the population that weren’t participating directly in the reference pricing schemes.
- Other actors are less exposed to price pressure from transparency (so far), including third-party administrators and insurers, in large part because of payments schemes that reward them on the basis of total payments — an incentive to maintain higher prices. However public policy solutions exist to increase transparency in these areas as well.
