Price transparency may also mean that consumers understand how prices are set and are aware of any price discrimination (different prices charged to different customers). In health care markets consumers often have difficulty finding useful price information. In particular, few consumers have a clear idea of what hospital stays or hospital-based procedures will cost, or understand how hospital charges are determined. It addresses certain special characteristics of the health care market which may reduce the importance of prices as signals, for example, the complicated nature of health care, the intermediation of physicians in making health care choices including choosing hospitals, and the presence of third party payment (e.g., insurance companies). One such example relates to NASDAQ. Considering all of the evidence of price transparency, the majority of the empirical studies tend to find that greater price transparency, including advertising and reduction in costs of finding information through the Internet, leads to lower and more uniform prices. Certain market characteristics of industries that provide many of these products are important in analyzing the effects of price transparency: they are subject to quality differences (and are thus not entirely homogeneous products); the product may be one whose nature and benefits are not easily understood by the customer; sellers charge different prices to different customers and customers pay different (and often small) shares of the costs because of insurance; and within specific geographic areas there may be few providers, at least in the case of hospitals. The discussion below reviews basic aspects of pricing that lead to different prices in a market and are relevant to discussing barriers to the effect of transparency on prices in the health market. Implications of Hospital Price Dispersion

Does evidence on the effects of price transparency in other markets, which by and large supports the view that better information on pricing reduces prices, imply that greater price transparency would affect health markets in the same way, despite the specific structures and characteristics of the health care market? Several private insurers also allow policyholders access to online tools that allow some price comparisons for medical procedures. Finally, changes in prices might correlate to offsetting changes in quality or amenity levels. However, the available evidence, while preliminary, suggests that the California price transparency initiative so far has had little observable effect where it might have been expected to have the greatest effect. How Would Greater Price Transparency Affect the Health Care Sector? Were price transparency to improve, and if consumer choice in health care were to become more sensitive to price differentials, then economic analysis would suggest that these effects would increase pressure on hospitals to become more productively efficient, that is, to use fewer inputs to produce the same or greater output. Price discrimination typically raises prices for some groups and lowers them for others. He found the lowest prices in states with no restrictions, but also some benefit from advertising without price advertising. Two studies related to food prices. Search Costs and the Internet
In some markets consumers obtain price information with difficulty or at high cost. On average, consumers who search more pay lower prices.
Consumer advocates, proponents of wider use of market incentives in the health care sector, and some policy makers have called for greater price transparency. These measures might include posting prices in an accessible form or regulations constraining price discrimination (different prices charged to different customers). Price transparency implies that consumers can obtain price information easily, so they can usefully compare costs of different choices. Price transparency may also mean consumers understand how prices are set and are aware of price discrimination. In health care markets consumers often have difficulty finding useful price data. In particular, few consumers have a clear idea of what hospital stays or hospital-based procedures will cost, or understand how hospital charges are determined.
Many empirical studies have investigated how changes in price transparency have affected various markets. Most of this evidence, largely relating to advertising restrictions and lower search costs on the Internet, suggests that price transparency leads to lower and more uniform prices, a view consistent with predictions of standard economic theory. If this evidence could be applied to the health market, it would suggest that reforms that increase transparency would reduce prices. In cases involving NASDAQ and Amazon.com, public reaction created pressure to change pricing strategies. A few studies, involving intermediate goods in one case and less clearly identified advertising effects in others, found that transparency raised prices.
However, the special characteristics of the health market make it difficult to directly apply empirical evidence gathered from other markets. These characteristics include limits on competition among hospitals, complicated products that vary in quality, intermediate agents (physicians) who make choices, and third-party payment of costs through insurance. The dispersion of prices for similar health care procedures is high, which suggests that these markets are not working well with respect to price outcomes, as would be expected in ordinary competitive markets. In addition, prices paid by different types of payers vary dramatically. On average, patients without insurance or who pay their own bills pay much more relative to what private insurers, Medicare, and Medicaid pay.
Despite these complications, greater price transparency, such as accessibly posted prices, might lead to more efficient outcomes and lower prices. Some markets where lifting advertising restrictions led to lower prices also involved complicated products such as eye care, suggesting that the complex nature of health care may not be a barrier to benefits from price transparency. Internet comparison shopping sites also appear to have lowered prices for many products. Better price information might allow patients, either directly or through their physicians, to obtain better value for health care services. Several states and health insurers now provide online data on hospital costs. These price transparency initiatives, at least so far, have had little visible effect on pricing. Public pressure, which in some cases has caused hospitals to curtail aggressive bill collection tactics, might change hospitals' and health care providers' pricing behavior. This report will be updated as events warrant.