Price Transparency and Healthcare Costs:The Case of the New Hampshire Healthcare Market

There is a longstanding debate in health economics and health policy concerning whether price transparency reduces healthcare spending. A common argument is that price information reduces healthcare costs, in part by allowing consumers to engage in more cost- conscious shopping through the selecting of lower-cost providers, in addition to increasing the ability of insurers to negotiate lower prices. However, an alternative argument is that price transparency may increase the level of healthcare prices by facilitating tacit collusion or by misdirecting patients to high-cost providers. This paper examines plausibly exogenous variation in the total payments of imaging services generated by the introduction of New Hampshire HealthCost (NHHC), a public website that discloses the bundle prices of healthcare procedures. I use rich visit-level information from the New Hampshire commercial claims database, which includes all claims related to imaging services delivered in New Hampshire from 2005 to 2010. I find that, due to supply-side responses, NHHC reduced total payments for procedures with new price information by 1.3%. Given that the average total payments of these procedures was $586 prior to NHHC and there were 439,454 related visits after NHHC was launched, this is an approximate $7.40 reduction per visit and $3,241,788 in total savings. I also find that the reduction was more pronounced for insurers who paid within the top quintile, relative to their competitors, before the new information was available. Finally, I show that the reduction in prices was largely attributable to renegotiation frictions.