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Could this backfire - similarly to how publicly traded companies' CEOs disclosing their pay caused their pay to skyrocket?

huitzitziltzin 4y ago
This is a good question and the answer is absolutely yes. It could raise prices. Consumers have some incentive to care how much they are spending on health care, but they aren't generally the claimant on savings they realize for their insurance plans. (Obviously the incentives for uninsured or self-insured patients (to the extent that there's anyone in the latter category) are quite different, but those populations are small.) On the other hand, every hospital has a strong, strong incentive to care a lot about how much their competitors are getting for the same procedures. (Much more than consumers, for example.) It's possible that these disclosures lead to prices falling as hospitals seek to undercut each other. However, most US hospital markets feature a small number of competing hospital systems in an oligopoly. The price-cutting pressures in such markets are much, much weaker. There is a "mutually assured destruction" aspect to price competition in such markets which may keep prices from falling. The latter incentive can raise prices too. IF you know your competitors across town are getting an extra $5,000 for a knee replacement and you know that the two of you are the only game in town for hospitals, you may raise your prices rather than lowering them. On balance I think this is the right policy, in part because I want this data myself as a researcher. But it is not unambiguous that this will lead to price reductions. Source: am a health economist.
marricks 4y ago
Can you support that claim? I couldn't find when CEO pay went public but it sounds very likely like one of those causes were correlation definitely doesn't imply causation.
- zeruch 4y ago
  All CEO pay for public companies is exposed in the 10Ks. What I suspect the person was referring to is the change where compensation became more tied to equity valuation.
  - lesuorac 4y ago
    CEO pay wasn't always public and the compensation is only mostly equity because it has a tax advantage [1]. [1]: https://americansfortaxfairness.org/tax-fairness-briefing-booklet/fact-sheet-tax-subsidies-for-ceo-pay/ https://americansfortaxfairness.org/tax-fairness-briefing-bo...
- bawolff 4y ago
  It makes sense to me. Transparency benefits the party that is more free to go elsewhere. Lots of companies, fewer good ceos, means that the ceos can leverage this better than the company can. To put another way - at work, if you knew how much every employee made at work, it would probably be helpful in salary negotiations. Dont see why it would be different for ceos
- elromulous 4y ago
  This[1] Wikipedia article talks about it some, and links to this[2] paper. [1]https://en.m.wikipedia.org/wiki/Executive_compensation_in_the_United_States https://en.m.wikipedia.org/wiki/Executive_compensation_in_th... [2]https://www.degruyter.com/document/doi/10.2202/1535-167X.1207/pdf https://www.degruyter.com/document/doi/10.2202/1535-167X.120... Edit: adding an additional paper on the topic https://www.princeton.edu/~amas/papers/CEODisclosureMandate.pdf https://www.princeton.edu/~amas/papers/CEODisclosureMandate....
akira2501 4y ago
That's an odd way to look at it, as a "backfire." We're introducing more information into the market. If some prices went up as a result, isn't that an indication that the lack of pricing information was being used to artificially depress prices? If so.. this isn't a "backfire" so much as an "obvious and necessary correction?"
- dwaltrip 4y ago
  Based off some of the other comments, here is the idea I’m picking up on: If a particular market isn’t that competitive and has oligopolistic aspects, more transparency may increase the “effectiveness” of the oligopoly. Instead of hospitals that were charging more lowering prices to compete, we could see hospitals that were charging less raises prices because they know the competitive pressures are weak and they don’t want to leave money on the table. Seems plausible to me, depending on how oligopolistic most hospital markets are.
- burnished 4y ago
  Medical care is not the kind of good that you can just say 'oh the market will correct it', because most of the assumptions you make about 'the market' don't apply to essential services.
  - akira2501 4y ago
    Does that apply to labor prices in the given markets, though? We can't force people to work there just because they are essential.
- kbenson 4y ago
  The cynic in me thinks this is what you get when you have a very weak correlation between price to outcome, but the perception is that you have a very high correlation between price and outcome. Boards think paying more gets them more, but if it doesn't maybe that just means the price keeps going up as boards attempt to pay more for better outcomes. I could see something similar happening in healthcare in select locations to some degree, if some hospitals continue to charge more for a specific procedure because the communities they are in are less price conscious and if there's not good information on outcomes to link to the cost. There are plenty of other products out there which cost a premium based on name alone, and there are quite a few very famous hospitals. Usually they are famous for expertise, but that doesn't mean their fame in one area won't lead people to believe they are equally as good or above average in others where they aren't, even if they charge more.

huitzitziltzin 4y ago

This is a good question and the answer is absolutely yes. It could raise prices. Consumers have some incentive to care how much they are spending on health care, but they aren't generally the claimant on savings they realize for their insurance plans. (Obviously the incentives for uninsured or self-insured patients (to the extent that there's anyone in the latter category) are quite different, but those populations are small.) On the other hand, every hospital has a strong, strong incentive to care a lot about how much their competitors are getting for the same procedures. (Much more than consumers, for example.) It's possible that these disclosures lead to prices falling as hospitals seek to undercut each other. However, most US hospital markets feature a small number of competing hospital systems in an oligopoly. The price-cutting pressures in such markets are much, much weaker. There is a "mutually assured destruction" aspect to price competition in such markets which may keep prices from falling. The latter incentive can raise prices too. IF you know your competitors across town are getting an extra $5,000 for a knee replacement and you know that the two of you are the only game in town for hospitals, you may raise your prices rather than lowering them. On balance I think this is the right policy, in part because I want this data myself as a researcher. But it is not unambiguous that this will lead to price reductions. Source: am a health economist.

marricks 4y ago

Can you support that claim? I couldn't find when CEO pay went public but it sounds very likely like one of those causes were correlation definitely doesn't imply causation.

zeruch 4y ago
All CEO pay for public companies is exposed in the 10Ks. What I suspect the person was referring to is the change where compensation became more tied to equity valuation.
- lesuorac 4y ago
  CEO pay wasn't always public and the compensation is only mostly equity because it has a tax advantage [1]. [1]: https://americansfortaxfairness.org/tax-fairness-briefing-booklet/fact-sheet-tax-subsidies-for-ceo-pay/ https://americansfortaxfairness.org/tax-fairness-briefing-bo...
bawolff 4y ago
It makes sense to me. Transparency benefits the party that is more free to go elsewhere. Lots of companies, fewer good ceos, means that the ceos can leverage this better than the company can. To put another way - at work, if you knew how much every employee made at work, it would probably be helpful in salary negotiations. Dont see why it would be different for ceos
elromulous 4y ago
This[1] Wikipedia article talks about it some, and links to this[2] paper. [1]https://en.m.wikipedia.org/wiki/Executive_compensation_in_the_United_States https://en.m.wikipedia.org/wiki/Executive_compensation_in_th... [2]https://www.degruyter.com/document/doi/10.2202/1535-167X.1207/pdf https://www.degruyter.com/document/doi/10.2202/1535-167X.120... Edit: adding an additional paper on the topic https://www.princeton.edu/~amas/papers/CEODisclosureMandate.pdf https://www.princeton.edu/~amas/papers/CEODisclosureMandate....

akira2501 4y ago

That's an odd way to look at it, as a "backfire." We're introducing more information into the market. If some prices went up as a result, isn't that an indication that the lack of pricing information was being used to artificially depress prices? If so.. this isn't a "backfire" so much as an "obvious and necessary correction?"

dwaltrip 4y ago
Based off some of the other comments, here is the idea I’m picking up on: If a particular market isn’t that competitive and has oligopolistic aspects, more transparency may increase the “effectiveness” of the oligopoly. Instead of hospitals that were charging more lowering prices to compete, we could see hospitals that were charging less raises prices because they know the competitive pressures are weak and they don’t want to leave money on the table. Seems plausible to me, depending on how oligopolistic most hospital markets are.
burnished 4y ago
Medical care is not the kind of good that you can just say 'oh the market will correct it', because most of the assumptions you make about 'the market' don't apply to essential services.
- akira2501 4y ago
  Does that apply to labor prices in the given markets, though? We can't force people to work there just because they are essential.
kbenson 4y ago
The cynic in me thinks this is what you get when you have a very weak correlation between price to outcome, but the perception is that you have a very high correlation between price and outcome. Boards think paying more gets them more, but if it doesn't maybe that just means the price keeps going up as boards attempt to pay more for better outcomes. I could see something similar happening in healthcare in select locations to some degree, if some hospitals continue to charge more for a specific procedure because the communities they are in are less price conscious and if there's not good information on outcomes to link to the cost. There are plenty of other products out there which cost a premium based on name alone, and there are quite a few very famous hospitals. Usually they are famous for expertise, but that doesn't mean their fame in one area won't lead people to believe they are equally as good or above average in others where they aren't, even if they charge more.