The key role of market transparency in health care efficiency

By Christopher Wolfington

If you’re in the market for a new bicycle, you probably are going to approach it a certain way. You’re probably going to be interested in a certain type of bike or a certain brand, and then you’ll likely check some prices. What store sells the bike at the best price? What is the average price of the bike, anyway? Does the bike ever go on sale? Are you interested in a new or used bike? What kind of return policy does the store have?  

Now, let’s say that you’re interested in going to the doctor to get a routine checkup or, say, an MRI. Most likely, you’re going to go to the best or most convenient location for you and not think of it any longer. After all, insurance is going to cover most of it--or even all of it minus a copay in the case of a routine checkup.

But costs don’t magically go away in health care. Just because the patient doesn’t shoulder the cost doesn’t mean that all MRIs cost the same at every location. The same bicycle doesn’t even cost the same at every retailer. Why would a procedure done by professionals with expensive equipment be any different?

The American Health Policy calls market transparency a “vital component of an efficient and effective health care system.” In a capitalist society where competition is often the root of progress, how can competition even occur if prices are hidden? Health care efficiency is ultimately about getting the best care possible at the best price possible. But it is inherently impossible to do so, regardless of any other factors, if the price component is obscured. Market transparency is therefore imperative for optimal health care efficiency.

Market transparency by itself is not a silver bullet for health care efficiency. Even if the market is fully transparent, consumers of health care won’t receive the full benefit of more efficient health care unless they are incentivized to do so. If you find a bicycle $50 cheaper at Retailer A versus Retailer B and make the purchase, you save $50. But if a biopsy costs $500 less at Hospital A versus Hospital B, the patient is significantly closer to Hospital B, and the end cost to the patient is the same, the patient is probably not going to pick Hospital A.

The challenge for health care efficiency regarding market transparency is therefore twofold. Not only does the market need to be transparent, but that transparency needs to be converted into efficiency by incentivizing patients to make similar decisions regarding health care as they do other goods and services: with cost and quality clearly in mind.