From Hidden Fees to Open Books: An Empirical Examination of the Impact of Hospital Price Transparency Rule on Costs and Quality of Medical Services

Abstract

In the United States, the lack of competition within the healthcare market is notably influenced by the opacity of service pricing, leading to unchecked price increases without improvements in service quality. The hospital price transparency rule, implemented on January 1, 2021, seeks to address this by requiring the disclosure of prices, aiming to stimulate competition and lower costs. Yet, the policy’s effect on hospital charges and consumer behavior remains largely unexplored. This study employs a difference-in-differences analysis of inpatient data from Florida hospitals to assess the impact of the Federal price transparency rule on hospital charges and patient decision-making, leveraging the phased compliance of hospitals with the rule. Our analysis reveals that while the price transparency rule does not broadly reduce hospital charges, it leads to lower charges for self-pay patients opting for elective procedures who are sensitive to price and can shop for better deals. This reduction is driven by both lower unit prices and decreased care complexity as hospitals compete to attract cost-conscious patients. Furthermore, our findings indicate that after the implementation of the policy, patients choose hospitals that not only comply with the rule but also charge below the market average, particularly benefiting those seeking elective services. This suggests that price transparency primarily aids cost-aware patients with the flexibility to choose more affordable providers. Our research underscores the nuanced impact of price transparency on healthcare costs and patient welfare, offering valuable insights for future healthcare policy development.