A century of evidence shows that when government officials start detailing how private companies must run their business, competition usually decreases while costs and bureaucracy increase. Even when officials try to make things better, they usually make things worse.
Colorado legislators will make things worse if they pass any of the three “health care transparency” bills introduced this session. Each of them would make formerly private business arrangements transparent to state government and other competitors, a move that the Federal Trade Commission considers likely to reduce competition and raise health care prices.
The bills advance the designs of those interested in giving Colorado bureaucrats more control over private health care decisions. Many of these people want government control of all health care products and services. House Bill 1260 on drug prices and drug company contracting, House Bill 1009 on diabetes treatment, and House Bill 1358 on health care system contracting all contain extensive reporting requirements for commercially sensitive information that brings government run health care advocates closer to their goal.
The transparency components of these bills are minimal, focusing on reporting list prices that almost no one actually pays, organized by the tens of thousands of obscure payment codes that Medicare requires. The codes are the unfortunate offspring of Medicare’s reimbursement scheme. It is an adaptation of a Depression-era billing system designed to maximize hospital cash flow.
Onerous penalties lurk under the sunny promises of transparency. The bills contain provisions to enrich lawyers who sue providers for paperwork violations. They contain provisions for fines of up to $1,000 a day. If they pass, everyone providing health care in Colorado faces more legal risk. More risk means costs go up.
In a 2015 letter to Minnesota legislators considering similar disclosure laws, the Federal Trade Commission was of the opinion that the publication of competitively sensitive information on insurer contract pricing may “chill competition” in health care markets when there exists a limited number of competitors, high barriers to entry, and a steady or increasing demand for services. Forced publication may also facilitate collusion among oligopoly suppliers. It makes it easier to identify and punish competitors offering price cuts.
If simply providing more transparency was the only goal of the proposed legislation, none of this would be necessary. The state can obtain much of the data the bills require from other sources. Colorado’s All-Payer Claims database already collects detailed information on private insurance claims. Colorado Medicaid, which loves reminding everyone that it is the state’s largest insurer, has information that is as detailed and transparent as it gets on a huge number of health care claims and payments. Medicare reimbursements are public, and the Trump administration’s proposed rule on inpatient payment systems would require each hospital to publish an annually updated list of charges.
Simply buying a subscription to Medi-Span, First Databank, or Truven Health Analytics would provide even more information on pricing than the bills request. These private data vendors provide close to real time updating, complete pricing histories, and tools for analyzing the data.
Experian Health even sells hospitals an online tool that accurately estimates an individual’s cost of care using hospital list prices, payer contracted rates, and patient eligibility and benefits information. If lawmakers really want to help patients estimate their costs, why don’t they appropriate money to make those services available to Coloradans?
The worst part of all of this is that state legislators so often refuse to address or even acknowledge the fact that the federal government is the source of most of the cost problems these bills supposedly address. Insurance premiums have skyrocketed because Obamacare forced insurers to price subsidies into their products while eliminating meaningful competition in the insurance market. It substituted a crony capitalist oligopoly that now seems dedicated to maximizing federal subsidies.
The massive run up in prices for some generic drugs? Government again. New generic manufacturers cannot enter the market until the FDA reviews their claims of bioequivalence. As National Public Radio and others reported, the Obama administration presided over a backlog of thousands of generic applications. The backlog was so bad that none of the 1,500 additional applications submitted in 2014 had been approved by the end of the year.
Maybe Colorado legislators can explain how the heavy cost of their transparency bills will improve Obamacare insurance rules, Medicare pricing, the FDA review process, and the Hatch-Waxman Act corruption of normal patent law. Until then, more government control will only impede the private sector companies that are already making significant progress in bringing more transparency to the health care mess the government has created.
Linda Gorman directs the Health Care Policy Center at the Independence Institute, a free market think tank in Denver.