ECONOMIC AND BUDGET ISSUE BRIEF

Increasing Transparency in the Pricing of 

Health Care Services and Pharmaceuticals

What Is Price Transparency?

The price of a particular health care service is not uniform among providers or payers. Although a provider 

may have a list price for a particular service, the actual 

transaction price for that service varies widely, depending 

on the type of payer—individuals, governments, or insurance companies. Moreover, competing providers may collect different payments from different payers or types of 

payers. Therefore, in health care markets, list prices are 

often higher than what the provider accepts as payment 

in full from a particular payer. 

With so many different prices applicable to a particular 

health care service, it is perhaps not surprising that a 

consistent definition of the term “price transparency” is 

elusive. Publication of list prices has at times been 

referred to as transparency, but the term could also be 

used to describe insurers’ efforts to make available to their 

CBO A series of issue summaries from

the Congressional Budget Office

JUNE 5, 2008

The rising cost of health care represents the nation’s 

single most important long-term fiscal challenge. 

This brief explores whether increased transparency 

about prices for specific health care services and 

pharmaceuticals would help to temper the rapid 

growth in costs. The answer is unclear because evidence can be marshaled on both sides of the issue. 

Some observers believe that if individuals know the 

prices of health care services, they are more likely to 

seek out less expensive providers or treatments and 

to question how effective the care they are purchasing is likely to be. 

But several factors may limit the effectiveness of this 

type of transparency in cutting health care expenditures. On the consumer side, more than 80 percent 

of the population is covered by some form of health 

insurance, which insulates people from the full 

price of the health care they consume, limiting their 

incentive to compare prices. Doctors and other 

health professionals often direct decisions about 

what services to buy from whom, as individuals 

may have little information on the care they need or 

the quality or value of that care. Moreover, for 

insured and uninsured people alike, awareness of 

prices will make little difference in emergency situations or in the relatively small number

of cases that account for a disproportionate share of 

overall health care spending. 

On the provider side, more transparency would 

make information about the prices that hospitals, 

physicians, and drug companies charge insurers 

more visible, but whether such disclosure would 

lead to higher or lower prices for consumers on 

average is unclear and depends on the nature of 

competition in the relevant market. The markets for 

some health care services are highly concentrated, so 

increasing transparency in such markets could lead 

to higher, rather than lower, prices because higher 

prices are easier to maintain when the prices 

charged by each provider involved can be observed 

by all of the others. Whatever the effect on average 

prices, more transparent prices would probably 

reduce the range of prices.

Questions about transparency in health care costs 

extend beyond the prices for specific services and 

pharmaceuticals. Workers pay for employmentbased health insurance through reduced take-home 

pay, but those costs may not be evident to many of 

them. A greater awareness of the total costs of health 

care and who ultimately bears them might generate 

increased demand for efficiency in that sector.
2 CONGRESSIONAL BUDGET OFFICE

ECONOMIC AND BUDGET ISSUE BRIEF

subscribers the rates that they have negotiated with physicians and hospitals. A more expansive definition of transparency would make those rates available to anyone and 

not limit them to subscribers. Alternatively, a government 

agency or other entity could report average prices. Certainly, those different concepts of transparency may elicit 

different responses from consumers and providers.

Who Buys and Sells Health Care and at 

What Prices?

There are three primary payers for health care: individuals, governments, and private insurers. When an individual decides to seek care, in most cases payments from 

government insurance, such as Medicare or Medicaid, or 

from a private health insurer supplement the person’s outof-pocket spending. The 16 percent of individuals who 

lack health insurance face all of the charges for the health 

care they receive, though some may receive uncompensated care (either as charity or as a debt written off by the 

provider), reducing their out-of-pocket spending.

Health care providers are on the other side of that transaction. There are many types of providers: hospitals, physicians, pharmaceutical companies, laboratories, imaging 

centers for such services as MRIs (magnetic resonance 

images) and X-rays, physical therapists, nursing homes, 

and others. This brief focuses on the three largest components of health care spending—hospital care, services by 

physicians, and prescription drugs—which together 

accounted for about two-thirds of national health expenditures in 2006.1

For each good or service it delivers, a hospital or physician practice may bill a patient (or his or her insurer) 

according to its list prices. However, most patients’ 

accounts are settled for a smaller amount, with the actual 

transaction price depending on the individual’s insurance 

arrangement.2 The rates for Medicare and Medicaid 

patients are set unilaterally by the federal and state governments, respectively, and are frequently publicly available.3 Those payments are typically lower than the rates 

providers accept from private health insurers, with Medicare’s generally exceeding Medicaid’s.

For an individual with commercial health insurance, the 

price a provider typically accepts as payment in full is the 

result of a contract negotiated between the insurer and 

the provider. Such contracts usually require that the 

prices they set be kept confidential. Some insurers are 

beginning to make many of those prices accessible to 

their subscribers, which may make confidentiality more 

difficult to maintain. For prescription drugs, the system 

of charges and rebates that determines final prices to consumers and their insurers is particularly complex.4

An individual without insurance or someone whose 

insurance company has not reached an agreement with a 

provider is usually responsible for paying the provider’s 

list price. Such prices are not usually bound by the confidentiality that governs the prices negotiated between 

providers and health plans, but they may still not be 

accessible or comprehensible to people. 

What Information on Prices Is 

Available?

State governments, state-level industry associations, and 

various private organizations have started to publish 

prices for some health care services, usually hospital services. The usefulness of that information to individuals is 

likely to vary, both with the type of service they require 

(emergency care as opposed to treatment planned in 

advance) and with their health insurance status. 

Programs in Wisconsin and California present information that is typical of that offered by many state governments and industry associations.5

 The Wisconsin 

1. Department of Health and Human Services, Centers for 

Medicare and Medicaid Services, National Health Expenditure 

data, January 8, 2008.

2. Hospitals in Maryland are an exception. The state requires the 

same price for all payers. See Maryland Health Services Cost 

Review Commission, Maryland Hospital Pricing Guide (December 

2006).

3. Although Medicare’s and Medicaid’s payment rates are public, 

they are typically set using coding systems and formulas that may 

not be easily understood by the average patient. For Medicare’s 

fee schedules, see www.cms.hhs.gov/FeeScheduleGenInfo or 

www.cms.hhs.gov/ProspMedicareFeeSvcPmtGen. Medicaid’s 

fee schedules differ by state. See, for example, Wisconsin’s: 

dhfs.wisconsin.gov/medicaid4/maxfees/maxfee.htm.

4. See Congressional Budget Office, Prescription Drug Pricing in the 

Private Sector (January 2007).

5. See the Wisconsin PricePoint System, available at 

www.wipricepoint.org. See also the Web site of California’s 

Office of Statewide Health Planning and Development, 

www.oshpd.ca.gov/HID/Products/Hospitals/Chrgmstr/

index.html.
ECONOMIC AND BUDGET ISSUE BRIEF

INCREASING TRANSPARENCY IN THE PRICING OF HEALTH CARE SERVICES AND PHARMACEUTICALS 3

Hospital Association collects information from its members on their average and median charges to patients for a 

number of procedures. Since 2005, California has 

required hospitals to submit to the state and to make 

available to patients a copy of their list prices for all goods 

and services. Such information may be of only limited 

usefulness to people, though. The information made 

available in Wisconsin and California includes only hospitals’ charges and so leaves out other important charges. 

Perhaps the most important exclusion is the price of the 

services provided by physicians—surgeons, anesthesiologists, and others—during a hospital stay. In addition, 

individuals with health insurance coverage may face very 

different total prices and out-of-pocket expenses if their 

insurer has negotiated discounted rates. Rankings based 

on list prices may not hold for the prices insurers have 

negotiated. 

A New Hampshire initiative includes some of the information that others omit. The state’s Insurance Department collects detailed information from insurance claims 

data and, for each of the state’s largest health insurers, 

reports estimates of total prices and out-of-pocket 

expenses for an entire episode of care, including the prices 

paid for physicians’ services.6

The private sector is also reporting data on the price of 

hospital care, an indication that some firms believe consumers will value comparison shopping for health care. 

Those private ventures are more varied, and each example 

takes a different approach. Vimo, a private firm that provides information about health insurance providers, 

reports both a hospital’s list prices for procedures and its 

own estimate of the range of negotiated rates the hospital 

has agreed to with insurers. In Minnesota, Carol, another 

private firm, reports list prices from health care providers 

that have paid a fee to participate. However, those list 

prices are for provider-designed bundles of services that 

may not match insurers’ coverage or be easily compared. 

Insurers have also begun to provide pricing information 

to their subscribers.7

What Are the Potential Benefits of 

Price Transparency?

The primary argument in favor of more transparent pricing for specific health care services is that better information on prices will lead consumers to use health care more 

efficiently.8 For some individuals, the information could 

allow them to consider various providers to find the one 

offering the lowest price. Other people may opt not to 

seek care for a particular ailment, deciding that their condition is not serious enough to warrant the expense or 

that the promise of a remedy is not likely enough to justify the price of treatment. Still others may use the information to compare the prices of alternative treatments—

a course of physical therapy versus surgery, for example.

People who do not have health insurance and those 

whose insurance arrangements require substantial out-ofpocket expenditures through large deductibles or other 

cost sharing are more likely to adjust their health care 

spending in response to prices. In particular, individuals 

enrolled in consumer-directed health plans, which combine a high-deductible insurance policy with taxsheltered accounts to finance out-of-pocket payments, 

would probably find price transparency more useful than 

individuals with policies involving HMOs (health maintenance organizations) or PPOs (preferred provider organizations), for which cost sharing may involve only a 

fixed-dollar copayment.9 Although enrollment in those 

high-deductible policies has been growing since health 

reimbursement accounts (HRAs) and health savings 

accounts (HSAs) were approved in 2002 and 2003, 

respectively, those plans still represent a small share of the 

market. According to the Congressional Budget Office’s 

(CBO’s) estimates, by January 2006, approximately 

6 million people were enrolled in insurance policies eligible for HRAs or HSAs, compared with the 180 million 

people under age 65 who had private health insurance 

coverage that year.10

6. See New Hampshire’s HealthCost Web site, 

www.nhhealthcost.org.

7. For details on two instances, see www.aetna.com/news/

2007/1003.htm and www.humana.com/members/tools/

transparency.asp.

8. See the statement of Regina E. Herzlinger, Professor of Business 

Administration, Harvard Business School, before the Subcommittee on Health of the House Committee on Ways and Means 

(July 18, 2006).

9. Once an individual’s health care spending exceeds that high 

deductible, the incentive to shop on the basis of price falls.

10. Congressional Budget Office, Consumer-Directed Health Plans: 

Potential Effects on Health Care Spending and Outcomes (December 

2006), p. xi; and U.S. Census Bureau, Income, Poverty, and Health 

Insurance Coverage in the United States: 2006 (August 2007), 

Table C-3.
4 CONGRESSIONAL BUDGET OFFICE

ECONOMIC AND BUDGET ISSUE BRIEF

For people with a greater degree of cost sharing in their 

health insurance plans, more transparent pricing might 

reduce their consumption of health care or redirect it to 

less costly choices. The RAND Health Insurance Experiment, conducted in the 1970s and 1980s, showed that 

individuals purchase less health care when faced with 

greater cost sharing and that the reduction in health care 

services had little impact on their health.11 Although that 

study did not consider the question of price transparency, 

its results suggest that individuals who pay for health care 

on their own are responsive to out-of-pocket payments. 

At the same time, the evidence indicated that the primary 

effect was on whether individuals sought care for a medical condition; once they went to a doctor, subsequent 

spending per person was similar in the different costsharing arrangements. 

Researchers have studied the effects of price transparency 

in markets outside of health care and found that individuals alter their purchasing behavior when there is a 

change in the price transparency of a good they already 

consume and for which they pay the full price. For example, in one study, drivers in the United States were more 

likely to cut their use of toll roads when the price of a 

cash toll was posted than when the road had an electronic 

transponder toll payment system like E-ZPass, which 

might not quote the price of an individual toll.12 Experiments with real-time pricing of electricity showed that 

French retail customers shifted their use from higher- to 

lower-priced time periods.13

However, consumption of specific health care services 

might not show a similar response to more transparent 

pricing. Insured individuals generally pay only a portion 

of the total price and may not understand their payment 

responsibilities, so their behavior might not match that of 

consumers who face the full price of a good.14 In some 

instances, moreover, there may be only one reliable course 

of treatment available. Finally, many purchases of health 

care cannot be planned ahead of time and shifted to 

lower-priced providers; in an emergency, people generally 

will go to the nearest available provider.

What Are the Potential Disadvantages 

of Price Transparency?

The markets for some health care services are highly concentrated, and increasing transparency in such markets 

could lead to higher, rather than lower, prices. In markets 

where only a small number of firms operate, increased 

transparency would make it easier for those firms to 

observe the prices charged by their rivals, which could 

lead to reduced competition between them. In health 

care, reduced competition might result if more transparent pricing revealed the prices negotiated between insurers and providers, especially in concentrated markets. 

What Factors Might Lead to Higher Prices?

For the most part, the market for health care services is 

local. An individual choosing a physician or a hospital for 

care will, in general, be choosing among local providers, 

who may compete with one another.15 The degree of 

competition varies a great deal from one market to the 

next within the United States. Within a local area, the 

competitive landscape is also likely to differ across types 

of providers. For example, in a city with only one or two 

hospitals, there may still be extensive competition among 

many primary care physicians.16

More concentrated markets with fewer sellers are more 

likely to be conducive to the sort of coordination that 

would produce higher prices.17 In those instances, price 

11. Willard G. Manning and others, “Health Insurance and the 

Demand for Medical Care: Evidence from a Randomized Experiment,” American Economic Review, vol. 77, no. 3 (June 1987), 

pp. 251–277.

12. Amy Finkelstein, “E-ZTax: Tax Salience and Tax Rates,” 

Working Paper No. 12924 (Cambridge, Mass., National Bureau 

of Economic Research, February 2007). 

13. Christophe Aubin and others, “Real-Time Pricing of Electricity of 

Residential Customers: Econometric Analysis of an Experiment,” 

Journal of Applied Econometrics, vol. 10, no. S1 (November 2006), 

pp. S171–S191.

14. LASIK (laser-assisted in situ keratomileusis), cosmetic surgery, 

and dental care are not typically covered by insurance, but one 

study investigating price comparison shopping for them found 

limited to no shopping on that basis for those services, largely 

because of concerns about quality; referrals were more important. 

See Ha T. Tu and Jessica May, “Self-Pay Markets in Health Care: 

Consumer Nirvana or Caveat Emptor?” Health Affairs, Web 

Exclusive, vol. 26, no. 2 (February 6, 2007), pp. w217–w226.

15. Exceptions include patients who have unusual illnesses or who 

travel to a marquee clinic or physician for treatment.

16. However, the level of competition in the hospital market is likely 

to have an impact on the level of competition in services by physicians, because any physician entering the market will typically 

seek privileges at one of the local hospitals.

17. See Organisation for Economic Co-operation and Development, 

Directorate for Financial, Fiscal, and Enterprise Affairs, 

Committee on Competition Law and Policy, “Price Transparency,” September 11, 2001.
ECONOMIC AND BUDGET ISSUE BRIEF

INCREASING TRANSPARENCY IN THE PRICING OF HEALTH CARE SERVICES AND PHARMACEUTICALS 5

transparency makes it easy to observe a competitor’s 

prices and to respond to them. The incentive to price 

aggressively is reduced because a firm considering offering 

a lower price to gain more business knows that its few 

competitors could quickly observe that action and cut 

their prices to deny the firm its advantage or even to 

punish the firm.

Although economists might agree about the potential for 

such effects to arise, there is little empirical evidence 

about their extent. Studies of laws requiring greater transparency in other concentrated industries suggest that 

more transparency resulted in higher prices. Two studies 

have examined a change in a U.S. law in the late 1980s 

that required railroads to disclose some of their contract 

terms with grain shippers. One found that rail rates 

increased once the requirement took effect.18 The other 

study found that rail rates rose on routes without water 

competition but fell on routes where barges could more 

easily substitute.19 Thus, both studies suggest that railroads took advantage of the requirement for transparency 

to raise rates when they could observe what their competitors in concentrated markets were charging. Subsequent 

researchers, however, have raised concerns about the reliability of the data the studies used.20

A study of the Danish concrete industry that examined 

prices following the antitrust authority’s decision to publish firms’ transaction prices receives frequent mention in 

any discussion of increasing price transparency. The 

authors found that the average price of concrete rose 

between 15 percent and 20 percent following the publication of prices and concluded that the dissemination of 

price information empowered firms to practice tacit collusion.21 Observing their rivals’ prices made it possible 

for firms to charge higher prices without fear of being 

underbid. However, that result was based on a small 

sample of plants over a short period.

Hospital Markets. Hospital markets in the United States 

have grown steadily more concentrated, leaving some 

hospitals with the potential for substantial market power. 

One study counts an average of 58 consolidations each 

year between 1990 and 2003 in the United States.22 Even 

without transparency, as a local market grows more concentrated, its hospitals or hospital systems may gain the 

power to demand higher payment rates from insurers 

simply because there are fewer choices. Alternatively, 

some consolidations could produce economies of scale or 

scope that lower the costs to supply care. The type of hospital seems not to matter, as studies indicate that the pricing behavior and consolidation patterns for nonprofit 

hospitals are similar to those of for-profit hospitals.23

Even when they do not know the precise rates at which 

competitors are paid, hospitals may press for higher rates 

to be more in line with their competition. One study 

recounts that an effort by Blue Cross of California to convey information about hospital prices to its PPO enrollees 

by marking the lowest-priced hospitals with “$” and the 

highest-priced with “$$$$” was halted in part because so 

many low-priced hospitals pushed for higher prices.24 It 

is not clear, however, whether that pressure was the result 

simply of efforts to seek greater profits or a reaction out 

of fear that being pegged as low-priced would also suggest 

low-quality care.

Physician Markets. The markets for physicians’ services 

are often far less concentrated than hospital markets, 

reducing the likelihood that greater transparency would 

lead to higher prices. Though entry to the market is certainly expensive (training, licensing, and establishing a 

practice are all costly), the barriers are much lower than 

18. Stephen W. Fuller, Fred J. Ruppel, and David A. Bessler, “Effect of 

Contract Disclosure on Price: Railroad Grain Contracting in the 

Plains,” Western Journal of Agricultural Economics, vol. 15, 

no. 2 (December 1990), pp. 265–271.

19. John Schmitz and Stephen W. Fuller, “Effect of Contract 

Disclosure on Railroad Grain Rates: An Analysis of Corn Belt 

Corridors,” Logistics and Transportation Review, vol. 31, no. 2 

(June 1995), pp. 97–124.

20. K. Eric Wolfe and William P. Linde, “The Carload Waybill Statistics: Usefulness for Economic Analysis,” Journal of the Transportation Research Forum, vol. 36, no. 2 (1997), pp. 26–41.

21. Svend Albaek, Peter Mollgaard, and Per B. Overgaard, 

“Government-Assisted Oligopoly Coordination? A Concrete 

Case,” Journal of Industrial Economics, vol. 45, no. 4 (December 

1997), pp. 429–443.

22. Robert Town and others, “The Welfare Consequences of Hospital 

Mergers,” Working Paper No. 12244 (Cambridge, Mass.: 

National Bureau of Economic Research, May 2006).

23. See Congressional Budget Office, Nonprofit Hospitals and the 

Provision of Community Benefits (December 2006); and John 

Carreyrou and Barbara Martinez, “Nonprofit Hospitals, Once

for the Poor, Strike It Rich,” Wall Street Journal, April 4, 2008, 

p. A1.

24. Paul B. Ginsburg, “Shopping for Price in Medical Care,” 

Health Affairs, Web Exclusive, vol. 26, no. 2 (February 6, 2007), 

p. w213.
6 CONGRESSIONAL BUDGET OFFICE

ECONOMIC AND BUDGET ISSUE BRIEF

for hospitals. Except in some specialty markets, individual physicians therefore have little or no market power to 

exercise in their negotiations with health insurers. In fact, 

there have been numerous cases of physicians working 

together, allegedly anticompetitively, to obtain better 

contract terms from insurers, and of insurers agreeing to 

preferential rates for sizable local groups of physicians.25

With so many competitors to observe, individual physicians would be less likely than hospitals to be able to use 

more transparent pricing successfully to demand higher 

payments from health insurers. Conversely, a lack of price 

transparency can be a problem for physicians because it 

leaves them unsure of the payment amount they can 

expect for a service. 

Prescription Drug Markets. Spending on prescription 

drugs totaled $217 billion in 2006, or 11 percent of 

health expenditures.26 Brand-name pharmaceuticals that 

are sheltered from competition under patent protection 

may enjoy substantial market power and even monopoly 

power to the extent that no alternative drugs effectively 

treat the same condition. Even those drugs with competition from generic alternatives are likely to have only a 

limited number of rivals. For individuals with prescription drug insurance coverage, the final price that they and 

their insurer together pay for a prescription drug is significantly influenced by the rebate the manufacturer grants 

to the health insurer or to the pharmacy benefit manager 

(PBM) acting as the insurer’s agent.27 The insurer or 

PBM negotiates those discounts on the basis of a volume 

of business or a market share that it guarantees for the 

manufacturer or on the preferred status that it grants to a 

range of the manufacturer’s products. CBO’s past work 

has noted that requiring the disclosure of discounts made 

to prescription drug plans in the Medicare program could 

set in place conditions for tacit collusion, as manufacturers would find it more difficult to set prices below their 

competitors’ without detection.28

There are a number of different benchmarks for drug 

prices, but many are based on list prices and do not take 

into account the discounts and rebates that manufacturers grant insurers and PBMs. In conjunction with a 

change in the rules governing Medicaid’s reimbursement 

for prescription drugs, the Centers for Medicare and 

Medicaid Services was to collect and publish what is 

termed the average manufacturer price (AMP) for prescription drugs starting in 2007, but legal action has 

delayed the endeavor.29 Though revealing the AMP 

would not allow competitors to observe their rivals’ prices 

directly, it could alter the balance of bargaining power 

between payers and manufacturers in negotiating discounts and move the average price higher or lower.

What Factors Might Prevent Higher Prices?

Though many health care providers have significant 

market power, they do not operate unchecked. Just as 

providers attempt to use their market power to press for 

higher prices, insurers attempt to use their market power 

to push prices down. In addition to that market discipline, antitrust authorities may intervene if they suspect 

anticompetitive behavior.

Health Insurers. Insurance—either public or private—is 

the primary payer for most purchases of health care in the 

United States. The prices paid by Medicare and Medicaid 

are set by regulators and are generally publicly available 

and therefore may serve as a benchmark for negotiations 

between private insurers and health care providers. With 

transparency, what happened to those negotiated prices 

would depend in large part on whether providers or 

insurers had more bargaining power.

25. See, for example, Federal Trade Commission, “Texas Doctors’ IPA 

Agrees to Settle Price Fixing Charges” (press release, February 13, 

2006), available at www.ftc.gov/opa/2006/02/laredo.shtm. 

26. Department of Health and Human Services, Centers for Medicare 

and Medicaid Services, National Health Expenditure data, January 8, 2008.

27. Individuals without insurance coverage for prescription drugs pay 

the entire retail price themselves, making the price transparent at 

the point of purchase. There may be substantial variation in prices 

among pharmacies, though it may be difficult to uncover those 

differences. See Ha T. Tu and Catherine G. Corey, State Prescription Drug Price Web Sites: How Useful to Consumers? Research Brief 

No. 1 (Washington, D.C.: Center for Studying Health System 

Change, February 2008).

28. Congressional Budget Office, Potential Effects of Disclosing Price 

Rebates on the Medicare Drug Benefit (March 12, 2007). The Federal Trade Commission expressed similar concerns about an earlier 

proposal in California that ultimately was not implemented. See 

the letter from Susan A. Creighton and others, Federal Trade 

Commission, Bureau of Competition, Bureau of Economics, and 

Office of Policy Planning, to Greg Aghazarian, California Assembly Member, September 7, 2004.

29. Letter from Gale P. Arden, Director, Center for Medicaid and 

State Operations, Disabled and Elderly Health Programs Group, 

to State Medicaid Directors, December 21, 2007, available 

at www.cms.hhs.gov/DeficitReductionAct/Downloads/

SMDAMPLetter.pdf.
ECONOMIC AND BUDGET ISSUE BRIEF

INCREASING TRANSPARENCY IN THE PRICING OF HEALTH CARE SERVICES AND PHARMACEUTICALS 7

Health insurance plans have substantial bargaining power 

in their negotiations with health care providers. Larger 

health insurers are able to extract larger discounts from 

providers, and, like hospital markets, the health insurance 

market has grown more concentrated.30 The American 

Medical Association reports that two large private health 

insurance companies in the United States—WellPoint 

Inc. and UnitedHealth Group—now cover 67 million 

people, or more than one-third of the commercial health 

insurance market, following numerous acquisitions 

between 2000 and 2007.31 Another study found that the 

largest commercial insurer controlled at least one-third of 

the market in 38 states and more than half the market in 

16 states in 2002 and 2003. The largest three plans controlled more than 50 percent of the market in all but 

three states.32 The potential for other health insurers to 

enter a market may exert some competitive pressure on 

the existing insurers, but the opportunity for entry may 

be limited. According to that same analysis, the four largest national health plans (along with regional Blue Cross 

and Blue Shield plans) already operate in most states, so, 

in addition to regulatory barriers, new insurers could face 

difficulties in building networks of providers and 

subscribers.

Although it is difficult to know how concentration in the 

health insurance market might alter the effects of transparency, one study has found that that concentration can 

counteract aspects of concentration in hospital markets.33

In markets where there was more competition between 

HMOs—and each one therefore had less market power 

to exercise in negotiating with hospitals—a hospital 

merger led to higher health insurance premiums. Where 

there was little competition between HMOs, however, a 

hospital merger had no effect on premiums. There, an 

HMO’s market power could counteract the hospitals’ 

increase in market power to prevent higher prices. On the 

whole, although both markets have grown more concentrated, one analyst concludes that hospitals’ bargaining 

position stands to benefit more from improved transparency than insurers’ bargaining position does.34

Antitrust Authorities. In an effort to prevent health care 

firms from coordinating to raise prices, federal antitrust 

authorities have issued guidelines to describe a “safety 

zone” for the dissemination of fee information that will 

be available to competing providers.35 To stay in the 

safety zone and avoid scrutiny by antitrust authorities, 

collective disclosure of fee information must meet three 

requirements: The information must be collected by a 

third party, any information that is available to competitors must be at least three months old, and the information must be collected from enough sources so that no 

individual provider’s price may be identified.

That last requirement would seem to prevent the public 

release of the prices negotiated between providers and 

insurers, but it does not preclude a provider or an insurer, 

acting independently, from disclosing those prices to its 

patients or subscribers. The health insurer Aetna has initiated such a program in a number of the local markets it 

serves. That level of transparency may be useful to people 

already enrolled in a health insurance plan to see the possibly different rates charged by each of the providers who 

participate in their insurer’s network. However, it would 

not help people choose a health insurance plan by allowing them to compare the prices different insurers have 

negotiated. Though publicly available prices might raise 

concerns about anticompetitive behavior, they could be 

useful to the many people choosing among insurance 

plans and seeking to minimize their total out-of-pocket 

spending on both insurance and health care.36

Aggregated or average price information would make it 

more difficult for providers to coordinate higher prices 

because individual providers’ prices would not be obvious. That aggregated information might be of limited use 

to people, because it would not allow comparisons of 

30. It is not clear how consolidation of health care plans and hospital 

systems into national companies has affected the bargaining process. Leverage in one city market could be used to gain better 

terms in another.

31. American Medical Association, Competition in Health Insurance: A 

Comprehensive Study of U.S. Markets, 2007 Update (2007).

32. James C. Robinson, “Consolidation and the Transformation of 

Competition in Health Insurance,” Health Affairs, vol. 23, no. 6 

(November/December 2004), pp. 11–24. 

33. Town and others, “The Welfare Consequences of Hospital 

Mergers.”

34. Ginsburg, “Shopping for Price in Medical Care,” p. w214.

35. See U.S. Department of Justice and Federal Trade Commission. 

Statements of Antitrust Enforcement Policy in Health Care, Statements 5 and 6 (August 1996).

36. Those individuals would include policyholders who purchase coverage in the individual market, employees whose employers offer 

two or more health insurance plans, and married individuals eligible for coverage through either spouse’s employer.
8 CONGRESSIONAL BUDGET OFFICE

ECONOMIC AND BUDGET ISSUE BRIEF

actual prices for different providers and different treatments. In small markets, where there may be fewer than 

five hospitals or other providers, even providing aggregated information would appear to fall outside the safety 

zone. 

What Could Happen to the Range of 

Prices Paid?

More transparent prices would probably reduce the range 

of prices that providers agreed to with payers as the new 

information altered the balance of bargaining power.37

That narrowing might happen in two different ways. A 

given provider might find price discrimination—charging different payers different prices—more difficult. Payers facing the high rates could use more transparent price 

information to press the provider for lower prices. Meanwhile, those private payers at the low end of the provider’s 

accepted payment range might see prices rise, driven by 

the provider’s ability to observe rivals’ prices and the provider’s desire to reduce the pressure to lower rates for 

high-end payers. More transparency would also shrink 

the range of prices paid by reducing the variation in 

prices among different providers. With transparency, lowprice providers would see the opportunity to raise rates, 

and high-price providers would seek to avoid losing clients to rivals with lower prices. Such compressing effects 

would also be expected if providers’ average prices were 

published. As long as there were enough different transactions that averages did not reveal the prices paid by individual payers, concerns about the potential for less aggressive price competition would be attenuated.

As an example, German electricity markets experienced a 

reduction in price dispersion following the government’s 

requirement that operators of transmission networks 

publish their access charges. In the year after the change, 

the average charge was little changed, but the variance 

decreased.38 The operators with the lowest prices before 

the requirement took effect raised their rates, while those 

with high prices reduced them. 

What Is the Likely Net Effect of More 

Price Transparency?

The implications of increased price transparency on the 

average price of health care goods and services, total 

health care spending, and the federal budget are ambiguous. The confluence of many factors—changes in individuals’ actions, the lack of incentives or feasibility for 

many individuals to change their behavior in purchasing 

health care, the potential for less aggressive pricing in 

markets where providers are concentrated, the counterweight in markets where insurers are concentrated, and 

the reduced variation in prices—makes it difficult to 

determine which forces would ultimately outweigh the 

others. In addition, the interpretation of price transparency used might also influence the end result for average 

prices and health care spending.

If, for example, insurers have a stronger bargaining position than providers and if enough individuals pay for a 

substantial portion of their care out of pocket, price 

transparency that reveals insurers’ negotiated rates could 

bring lower average prices and less spending. Conversely, 

when providers have a stronger position and individuals 

have few incentives or little ability to conserve health care 

spending, that same transparency could produce higher 

average prices and spending. Those results, however, may 

hold only in the short term, as health care providers 

decide to enter or leave health care markets in response to 

the prices they receive. 

37. For further discussion, see Congressional Budget Office, Potential 

Effects of Disclosing Price Rebates.

38. Christian Growitsch and Thomas Wein, “Negotiated Third Party 

Access—An Industrial Organisation Perspective,” European Journal of Law and Economics, vol. 20, no. 3 (2005), pp. 165–183.

This brief was prepared by Sheila Campbell. It and 

other CBO publications are available at the agency’s 

Web site (www.cbo.gov).

Peter R. Orszag

Director