Is more information about prices always a good thing for consumers and competition? Too much transparency can harm competition in any market, including in health care markets.
Ideally, health care consumers need better information about the health care services they might buy, targeted to each consumer’s specific situation: What are my treatment options? If I choose a particular medical procedure or set of services, who are the available providers in my area? How do those providers score under various quality measures? What do they charge? What will my out-of-pocket expenses be, through co-pays or deductibles? When I receive my explanation of benefits form, what will my insurance plan say I still owe?
To help consumers get answers to these questions, some state and federal policymakers have promoted price transparency initiatives. Over half the states have enacted price transparency laws that give health care consumers information to which they did not have access before. In principle, greater transparency seems useful, because markets typically function better when consumers have the information they need to make choices among available options.
But transparency is not universally good. When it goes too far, it can actually harm competition and consumers. Some types of information are not particularly useful to consumers, but are of great interest to competitors. We are especially concerned when information disclosures allow competitors to figure out what their rivals are charging, which dampens each competitor’s incentive to offer a low price, or increases the likelihood that they can coordinate on higher prices.
Too much transparency can harm competition in any industry, including health care. Typically, health care providers (hospitals, outpatient facilities, physician groups, or solo practitioners) compete against each other to be included on a health plan’s list of preferred providers. When networks are selective, providers are more likely to bid aggressively, offering lower prices to ensure their inclusion in the network. But when providers know who the other bidders are and what they have bid in the past, they may bid less aggressively, leading to higher overall prices.
We believe it is possible to give consumers the specific kinds of information they need to make better health care choices, while avoiding broad disclosures of bids, prices, costs, and other sensitive information that may chill competition among health care providers. Striking the right balance, and mitigating the risk of harm to the competitive process, requires careful fine-tuning of transparency laws and regulations. As with all things, details matter.
FTC staff recently responded to a request for comment by two Minnesota state legislators regarding the possible competitive effects of a legislative proposal to disclose the terms of Minnesota’s public health care services contracts. The comment explained that disclosing the terms of these health plan contracts might offer little incremental benefit to consumers, but could pose a substantial risk of reducing competition in health care markets by undermining the effectiveness of selective contracting by health plans in Minnesota. As explained in the comment, this risk is especially great if the information becomes accessible to competing health care providers in markets with only a few providers.
The FTC staff comment encouraged the Minnesota legislature to consider limiting transparency to the types of information most useful to Minnesotans when they compare and select health care providers and services – such as actual or predicted out-of-pocket expenses, co-pays, and quality and performance comparisons of plans or providers. Beyond this consumer-friendly information, staff suggested that the Minnesota legislature use caution when mandating disclosure of information such as plan structures and contracted fee schedules between health plans, hospitals, and physician service entities. The staff comment explained the risk that the latter type of transparency might harm competition by enabling competing providers to coordinate or collude on price, while being unlikely to help consumers become better health care shoppers.
FTC staff explored transparency issues during our 2014 Examining Health Care Competition workshop, and we will continue to pay close attention to the issue. We share the goal of empowering health care consumers – but we think it is important to remember that consumers benefit from vigorous health care competition, too.