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I study the effects of price transparency by leveraging the introduction of steel futures markets in a difference-in-differences setting. In line with recent theory, producer profit margins, customer material costs, and input cost dispersion within customer industries decrease. Further, the market share of low-cost producers increases. Overall, price transparency appears to foster competition and improve resource allocation, and represents an important real effect of financial markets.
Recent technologies provide consumers with access to price information for medical services, a market with uncharacteristic price dispersion and opaque prices. This paper examines the effects of an online price transparency platform on consumer behavior. I find that consumer use of price transparency information leads to a 16% reduction in prices for lab tests, 15% reduction for advanced imaging, and has an approximately 1% effect for physician office visits. Consistent with a search costs model, I find larger effects in markets with high price dispersion. However, for physician office visits, the value of non-price information exceeds the value of price information.
New York Times bestseller Business Book of the Year--Association of Business Journalists From the New York Times bestselling author comes an eye-opening, urgent look at America's broken health care system--and the people who are saving it--now with a new Afterword by the author. "A must-read for every American." --Steve Forbes, editor-in-chief, FORBES One in five Americans now has medical debt in collections and rising health care costs today threaten every small business in America. Dr. Makary, one of the nation's leading health care experts, travels across America and details why health care has become a bubble. Drawing from on-the-ground stories, his research, and his own experience, The Price We Pay paints a vivid picture of the business of medicine and its elusive money games in need of a serious shake-up. Dr. Makary shows how so much of health care spending goes to things that have nothing to do with health and what you can do about it. Dr. Makary challenges the medical establishment to remember medicine's noble heritage of caring for people when they are vulnerable. The Price We Pay offers a road map for everyday Americans and business leaders to get a better deal on their health care, and profiles the disruptors who are innovating medical care. The movement to restore medicine to its mission, Makary argues, is alive and well--a mission that can rebuild the public trust and save our country from the crushing cost of health care.
Non-transparent information about prices is a key piece of many economic models. George Stigler's seminal work first formulated how 'search costs' lead to price dispersion in provider prices. For several decades, refining the relationship between search costs and prices was a key component of the economics literature. With growth of the internet, consumer information about prices has increased substantially. The growth of online retailers has led to substantial decreases in search costs by providing an easy mechanism to compare prices. Recent technologies have expanded the internet's search-cost reducing powers to the healthcare sector. Compared to other markets, healthcare prices exhibit an enormous amount of price variation and have traditionally been among the most non-transparent of any market. The lack of meaningful price transparency has traditionally made price shopping for healthcare services nearly impossible. As consumer cost-sharing increases, led by the growth in high-deductible health plans, there is a strong imperative to provide the tools necessary for consumers to shop for care. Without accurate price information, increases in consumer cost-sharing will simply shift expenses from employers and insurers to consumers. While the hope is that 'price transparency' information will encourage consumers to shop for care, little is known about how consumers actually use price information. The first chapter of this dissertation uses detailed data from a leading online price transparency firm to examine the consumer effects of price transparency. Large price effects are found for commodity-like services as consumers shift demand from expensive to less-expensive providers. For physician office visits, which entail a more personal relationship, the largest effects are for non-price information, such as provider gender and length of practice. Even less is known about how providers will respond to consumers using price transparency information to shop for care. Healthcare providers have not traditionally had to account for consumers making decisions based on price and have simply negotiated prices with insures. With the growth of consumer cost-sharing and price transparency, this paradigm will undoubtedly change. The second chapter uses the same data to estimate an initial look at how providers respond to consumer price transparency. Following the consumer analysis, large effects are found for non-differentiated products. Consistent with Stigler's observations, reducing consumer search costs leads to both reductions in consumer prices and the prices that providers charge. The third chapter of this dissertation examines a similar topic as the second, how providers respond to increases in consumer-cost sharing. This chapter leverages the implementation of a Reference-Based Benefit (RBB) design by the California Public Employees Retirement System (CalPERS) that capped reimbursements for certain procedures. Previous work has documented large consumer effects to the RBB program but how providers respond has not been studied in detail. The results show large price reductions by providers who have the largest exposure to the CalPERS population. As a means to reduce the growth in healthcare spending, employers and insurers have implemented innovative benefit designs and technologies. These changes are largely driven by the recognition that the current healthcare ecosystem has evolved into a market with substantial price variation and no link between price and quality. Consumer cost-sharing and price transparency provide both the incentive and the means to steer patients away from high-cost providers. As these innovations have their desired effects, this dissertation shows how providers respond accordingly. These tandem consumer and provider responses to price transparency and target cost-sharing result in general equilibrium effects that lead to less expensive healthcare and a more efficient healthcare market.
The United States has the highest per capita spending on health care of any industrialized nation but continually lags behind other nations in health care outcomes including life expectancy and infant mortality. National health expenditures are projected to exceed $2.5 trillion in 2009. Given healthcare's direct impact on the economy, there is a critical need to control health care spending. According to The Health Imperative: Lowering Costs and Improving Outcomes, the costs of health care have strained the federal budget, and negatively affected state governments, the private sector and individuals. Healthcare expenditures have restricted the ability of state and local governments to fund other priorities and have contributed to slowing growth in wages and jobs in the private sector. Moreover, the number of uninsured has risen from 45.7 million in 2007 to 46.3 million in 2008. The Health Imperative: Lowering Costs and Improving Outcomes identifies a number of factors driving expenditure growth including scientific uncertainty, perverse economic and practice incentives, system fragmentation, lack of patient involvement, and under-investment in population health. Experts discussed key levers for catalyzing transformation of the delivery system. A few included streamlined health insurance regulation, administrative simplification and clarification and quality and consistency in treatment. The book is an excellent guide for policymakers at all levels of government, as well as private sector healthcare workers.
A firm's product-cost information is increasingly transparent to consumers as the firm itself or third parties publish such information, which reduces consumers' uncertainty for the product's cost. Using a dynamic model of firm pricing with forward-looking consumer choices, this paper assesses how cost transparency affects the firm's intertemporal price discrimination and profit, as well as the consumers' strategic waiting decisions and surplus. Ceteris paribus, if consumers believe a durable product has a lower cost, they will expect a larger future price drop and tend to delay purchases, impeding the firm's ability to engage in intertemporal price discrimination. Without cost transparency, consumers may infer products with higher prices to have higher costs, giving a low-cost firm incentive to mimic a high-cost firm's high price to encourage consumers to buy early. In contrast, a high-cost firm may choose to distort its price to avoid a low-cost firm's price mimicry. Cost transparency reveals the product's true cost to consumers, limiting the low-cost firm's ability to mimic prices. Thus, cost transparency will benefit (harm) a firm with a high (low) cost. In equilibrium, cost transparency will increase the firm's sales volume and induce more consumers to buy the product earlier instead of later, attenuating strategic waiting by consumers. We also find that cost transparency can lead to higher prices and hurt consumers if the firm has a high cost. In expectation, cost transparency leads to higher firm profits and consumer surplus, facilitating a firm's new-product innovation.
Many Americans believe that people who lack health insurance somehow get the care they really need. Care Without Coverage examines the real consequences for adults who lack health insurance. The study presents findings in the areas of prevention and screening, cancer, chronic illness, hospital-based care, and general health status. The committee looked at the consequences of being uninsured for people suffering from cancer, diabetes, HIV infection and AIDS, heart and kidney disease, mental illness, traumatic injuries, and heart attacks. It focused on the roughly 30 million-one in seven-working-age Americans without health insurance. This group does not include the population over 65 that is covered by Medicare or the nearly 10 million children who are uninsured in this country. The main findings of the report are that working-age Americans without health insurance are more likely to receive too little medical care and receive it too late; be sicker and die sooner; and receive poorer care when they are in the hospital, even for acute situations like a motor vehicle crash.
Thanks to remarkable advances in modern health care attributable to science, engineering, and medicine, it is now possible to cure or manage illnesses that were long deemed untreatable. At the same time, however, the United States is facing the vexing challenge of a seemingly uncontrolled rise in the cost of health care. Total medical expenditures are rapidly approaching 20 percent of the gross domestic product and are crowding out other priorities of national importance. The use of increasingly expensive prescription drugs is a significant part of this problem, making the cost of biopharmaceuticals a serious national concern with broad political implications. Especially with the highly visible and very large price increases for prescription drugs that have occurred in recent years, finding a way to make prescription medicinesâ€"and health care at largeâ€"more affordable for everyone has become a socioeconomic imperative. Affordability is a complex function of factors, including not just the prices of the drugs themselves, but also the details of an individual's insurance coverage and the number of medical conditions that an individual or family confronts. Therefore, any solution to the affordability issue will require considering all of these factors together. The current high and increasing costs of prescription drugsâ€"coupled with the broader trends in overall health care costsâ€"is unsustainable to society as a whole. Making Medicines Affordable examines patient access to affordable and effective therapies, with emphasis on drug pricing, inflation in the cost of drugs, and insurance design. This report explores structural and policy factors influencing drug pricing, drug access programs, the emerging role of comparative effectiveness assessments in payment policies, changing finances of medical practice with regard to drug costs and reimbursement, and measures to prevent drug shortages and foster continued innovation in drug development. It makes recommendations for policy actions that could address drug price trends, improve patient access to affordable and effective treatments, and encourage innovations that address significant needs in health care.
Doctors are obviously influential in determining the costs of their services. But even more important, many believe, is the influence physicians have over the use and cost of nonphysician health-care resources and services. Doctors and Their Workshops is the first comprehensive attempt to use economic analysis to understand some of the physician effects on nonphysician aspects of health care.