BUSI 629 Week 8 Discussion Board Forum 8 Example

Discussion Board Forum 8: Information, Regulation and Health Care Prices

BUSI 629 Economic Analysis in Healthcare, Discussion Board Forum 8

Thread by [Student Name]

The health system and the classmates are composites; the textbook and the peer-reviewed studies cited are real.

Our regional health system's finance team recently spent a meeting reviewing the machine-readable price files our three competitors are required to post under the federal hospital price transparency rule. One competitor's negotiated rate for a shoulder arthroscopy with our largest commercial insurer was 30% below ours, and the question became whether to cut our price before patients and employers noticed. The answer depends on who actually reads posted prices, which is a question economics can help answer.

Lee (2015) explains that health care markets suffer from information problems: patients rarely know prices before care, searching for them is costly and insurance shields them from much of the bill. When buyers cannot compare, sellers face less pressure to compete on price, and prices can remain both high and widely dispersed. Standard theory therefore predicts that making prices public should lower search costs, push patients toward cheaper providers and force high-priced sellers down, narrowing dispersion and lowering the average. That prediction rests on an assumption that patients will use the information and that they bear enough of the price to care.

The evidence on the patient side is discouraging. Desai et al. (2016) studied two large employers that offered workers an online tool showing what they would pay at different providers. Only 10% of employees used it in the first year, and being offered the tool was associated with a $59 increase in outpatient spending rather than a decrease, likely because most spending is on services patients cannot shop for, and insured patients often face the same copay wherever they go. The market side shows a different effect. Rochlin et al. (2026) analyzed nearly 500,000 negotiated prices for 125 reconstructive surgery services at 403 hospitals between late 2021 and mid-2024, after the rule took effect. Prices converged in 677 of 886 local markets, with the gap between high- and low-priced hospitals narrowing by 13.4 percentage points a year, mostly because initially high-priced hospitals came down. Yet the overall inflation-adjusted price level did not change, which means some lower-priced hospitals likely moved up.

These findings fit the framework in Lee (2015) once we recognize that the main readers of price files are not patients but insurers and hospitals. An insurer that learns a competitor is paid less can demand the same rate, and a hospital that learns it is paid less than its rivals can demand more. Disclosure narrows the range but does not, on its own, lower the average, because the price-setting power stays where it was. Posted prices change the conversation at the bargaining table far more than the choice at the front desk, and a manager should plan for that audience.

For our finance team, this suggests not cutting the arthroscopy price simply because it is posted. Instead, we should expect our largest insurer to raise the competitor's rate in the next negotiation, prepare to justify our price with quality and outcome data, and identify services where we are the high-priced outlier, because insurers will now see exactly how far above the market we sit. We should also review services where we are priced far below rivals, because the same data may support a higher rate at renewal.

This question also draws together several ideas from earlier in the course. Elasticity explains why the patient tool did little: an insured patient with a fixed copay faces almost no price difference between hospitals, so their demand is nearly insensitive to the posted rate. Market power explains why prices converged without falling: disclosure changes what each side knows at the negotiating table, but not how many alternatives each side has. A policy that changed patients' incentives, such as reference pricing that makes patients pay the difference above a set amount, or one that increased competition, would be more likely to lower the average price than disclosure alone. For a manager, the lesson is to ask which buyer a policy actually reaches before predicting what it will do to revenue.

Reply to Marisol

Marisol, your thread argued that transparency rules cannot work until enforcement improves, since many providers post incomplete or misleading information. I agree, and a recent Texas study adds evidence from a setting where prices had been especially opaque. Texas passed a law requiring freestanding emergency departments to disclose that they are emergency facilities, list their standard fees and state which insurance networks they join. Marthey et al. (2026) reviewed 351 of these facilities against 16 requirements and found that average compliance was 64.5% among independent facilities and 44.7% among those owned by hospitals, with only 11.5% of independent facilities meeting every requirement. Fee disclosures had the lowest compliance, which is the information patients need most before deciding where to go. Interestingly, compliance was higher where there was more emergency department competition, which fits the argument in Lee (2015) that competition gives sellers a reason to inform buyers. That finding suggests enforcement matters most in less competitive areas, where facilities have little market reason to disclose. It also helps explain why hospital-owned satellite facilities complied less often than independent ones: a satellite can rely on its parent hospital's name and network contracts to attract patients, while an independent facility competing for the same patients has more reason to advertise its fees and insurance status clearly. I would add one point to your proposal for higher penalties: regulators could target audits to markets with fewer competitors, since that is where the Texas data show disclosure falls short. For patients in an emergency, though, even full compliance may help little, because few people compare fees during chest pain, so the main value of these rules may again be for insurers and for the facilities' own pricing decisions. Disclosure that reaches people before an emergency, such as insurer notices explaining which nearby facilities are in network, may protect patients more than a fee schedule posted on a website they will never visit while in pain.

Reply to Owen

Owen, your thread proposed that employers use the posted price files to push insurers toward contracts that pay hospitals a fixed multiple of Medicare rates, which would make prices predictable and easier to compare. A study using the price files themselves shows how far the market already is from that model. Koos et al. (2026) examined 157,313 contracts between 4,033 hospitals and health plans and found that among commercial group contracts that price inpatient stays by diagnosis-related group, only 32% to 36% tied prices to Medicare's fee schedule, while 25% to 27% tied them to the hospitals' own list prices. About 17% of hospitals did not use diagnosis-related groups in any contract. Medicare Advantage contracts were much more likely to be benchmarked to Medicare, at 64%. Hospitals facing less competition were more likely to negotiate prices based on their list prices, which Lee (2015) would read as market power, since a hospital with few rivals can tie its payments to a chargemaster it controls. Your proposal is therefore sound, but it will be hardest to achieve exactly where it would help most, in concentrated markets. Employers there may need to act together, through purchasing coalitions, to gain enough bargaining power to insist on Medicare-based terms. The study also suggests a practical first step: an employer can ask its insurer what share of its hospital contracts are tied to Medicare rates, since that single number shows how predictable its costs really are. A second step is to compare the price files of the two or three hospitals that serve most of its employees, because if one hospital is consistently priced well above the others for the same services, the employer can steer employees there less, through plan design, and give the insurer a credible reason to renegotiate. That approach turns posted prices into bargaining power for the buyer who pays most of the bill.

References

Desai, S., Hatfield, L. A., Hicks, A. L., Chernew, M. E., & Mehrotra, A. (2016). Association between availability of a price transparency tool and outpatient spending. JAMA, 315(17), 1874-1881. https://doi.org/10.1001/jama.2016.4288

Koos, H., Scheinker, D., Schulman, K., & Baker, L. (2026). Who contracts on diagnosis related groups and how are they priced? Evidence from hospital price transparency. Health Services Research, 61(2), 1-11. https://doi.org/10.1111/1475-6773.70059

Lee, R. H. (2015). Economics for healthcare managers (3rd ed.). Health Administration Press.

Marthey, D., Sontam, H., Estrada-Gómez, O., & Ukert, B. (2026). Freestanding emergency department compliance with consumer protections: Evidence from Texas. Health Affairs Scholar, 4(5), qxag095. https://doi.org/10.1093/haschl/qxag095

Rochlin, D. H., Boe, L., Snow, D., Dimaano, M., Rubin, D., Mehrara, B. J., Matros, E., & Xiao, F. (2026). Negotiated prices for reconstructive surgery converge without reduction in overall price level after federal price transparency regulations. Journal of the American College of Surgeons. Advance online publication. https://doi.org/10.1097/XCS.0000000000002176