The Effects of Price Transparency Regulation on Prices in the Healthcare Industry

Abstract

Using micro data on actual healthcare purchases, we provide evidence on the causal effects of charge-price transparency regulation (PTR). We find that PTR causes providers to reduce charges by approximately 6%. However, despite the strong cross-hospital correlation between charge and actual prices, these reductions do not lead to lower actual payments. Cross-sectional variation in the estimated treatment effect suggests that the reputational costs of perceived overcharging rather than increased consumer search explain the reduction in charges. Our results show that reputational concerns affect hospitals’ charge setting strategies and illustrate how the healthcare industry’s complex, heterogeneous pricing structure makes it difficult to increase consumer welfare by increasing transparency.