Health Care Costs Are An Urgent Problem, But Price Transparency Is Not The Solution, Two Health Industry Professionals Say

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  • Legislation requiring transparency of health care prices may not lead to lower drug and hospital-related prices, two opponents of such measures said.
  • Dr. Robert Graboyes, a researcher at George Mason University, said that price transparency could lead to collusion between hospitals that results in higher prices. He instead advocated for increasing competition.
  • Dr. Keith Smith, an anesthesiologist at the Surgery Center of Oklahoma, said that unnecessary government intervention has created inefficiencies and driven up prices.

The rising cost of health care is an urgent problem in the United States, but health care price transparency is not the way to solve it, two health industry professionals told the Daily Caller News Foundation.

Dr. Robert Graboyes, a researcher and academic at George Mason University, told the Daily Caller News Foundation that adding transparency to health care pricing “a number of problems” that could ultimately lead to an increase in costs for consumers.

Graboyes said that implementing health care price transparency could lead to tacit collusion among hospitals and pharmaceutical companies due to how the industry is structured. Basically, if providers knew what their competitors charged, a provider with lower rates could raise its prices to match the higher one with little risk of losing business, he said.

“Three simultaneous circumstances are necessary for tacit collusion: a small amount of sellers, high barriers to becoming a health care provider, and mutual knowledge of pricing,” he told the DCNF. He said that “the first two are already a part of the sector.”

If hospitals or drug companies are suddenly required to disclose their prices, Graboyes said, then “the few competitors could be enabled to tacitly coordinate.”

Graboyes said that health care companies’ goal is to be profitable and noted that they could collude even without explicit communication between each other. If prices are transparent, he said, then companies need to merely “observe one another and react.”

“All it takes is one company raising its prices. Then, since there is relatively little competition, others could be enabled to follow suit,” he said.

President Donald Trump signs an executive order aimed at requiring hospitals to be more transparent about prices before charging patients for healthcare services, at the White House in Washington, U.S. June 24, 2019. (REUTERS/Erin Scott)

His comments were echoed by Dr. Keith Smith, an anesthesiologist at the Surgery Center of Oklahoma, who said that “a true free market with competition and lower prices cannot exist through government intervention.”

“The only way for government to bring value to the situation is to acknowledge their role in creating it,” he told the DCNF. He said Medicare often overpays hospitals for services and criticized legislators who have received thousands in donations from health care and pharmaceutical companies.

Graboyes and Smith acknowledged that collusion can take place behind closed doors without consumers’ knowledge, an argument often echoed by those advocating for price transparency as well. (RELATED: Pandemic Emphasizes The Need For Health Care Price Transparency, Advocate Says)

Advocates for price transparency have also pointed to the surprise health care costs spurred by the ongoing coronavirus pandemic in arguing for care providers to disclose their prices.

“People have been shorted during this pandemic,” transparency advocate Heather Higgins told the DCNF. “We’ve seen people everywhere forgoing health care to avoid surprise costs. With price transparency, Americans are given a service that they were previously denied.”

Instead of price transparency, Graboyes advocated for removing many of the barriers that have prevented free market competition within the sector. He also emphasized the need to remove Certificate of Need laws, which require legal documentation before new hospitals, insurers or pharmaceutical companies can expand or enter into a state or jurisdiction.

“We have built in all sorts of regulations that needlessly prevent the sort of competition that would result in prices heading downwards. We must create the incentive for private companies to do the right thing,” he told the DCNF. “And to do that, government must get out of the way.” (RELATED: Advocates Push For Health Care Price Transparency)

Smith said that while “Certificate of Need laws could remove barriers to entry for new health care facilities, we need existing facilities to acknowledge that they’re ripping people off.”

Smith advocated for legislation that would prevent hospitals from reporting on patients with unpaid hospital bills if a price was not first disclosed privately, saying that as a result, “prices would fall and quality would go up.”

“We have to discount the power of local cartels that can effectively determine prices in a community,” he said.

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