The impact of the public disclosure of hospital charges in Pennsylvania

Economic theory predicts that if prices are advertised by a large portion of the sellers, price differences diminish sharply. I suggest that a similar convergence of charges in the hospital industry is the core assertion of Pennsylvania's 1986 legislation mandating the public disclosure of hospital charges. The purpose of this investigation was to measure the impact of Pennsylvania's strategy on the variation of charges over time in two groups of Pennsylvania acute care general hospitals.;A database collected by the Pennsylvania Health Care Cost Containment Council ("the Council"), representing inpatient hospital care provided during calendar years 1990-1994, was used to calculate the average adjusted charge across 59 high-volume/high-charge Diagnosis Related Groups. The 72 Pennsylvania hospitals included in the study were assigned to low- or high-competition categories according to a calculated Herfindahl Index. Three hypotheses were tested using linear regression of a calculated measure of variation in charges over time. A survey was also used to collect data from hospital executives regarding their institution's use of the Council's publicly available information, and to assess their ratings of the importance of this information to internal operations and competitive activity.;Results of the data analysis include, (1) there were no statistically significant trends toward a reduction in the dispersion of charges in either category, but (2) there was a significant difference between the slopes of the regression lines, suggesting that the high-competition category demonstrated a greater reduction in the dispersion of charges. Results of the survey analysis showed that most respondents rated the importance of comparative charges "not," "minimally," or only "moderately" important to the process of adjusting charges, service provision, cost containment, or quality improvement. The high-competition category, however, assigned significantly higher ratings of importance to the Council's information as a whole in encouraging hospital competition based on quality. The study concludes that the convergence of charges anticipated by Pennsylvania's policy of public disclosure did not occur in either category, that hospital executives do not find comparative charges very important to operational or competitive activities, and that alternatives to the public disclosure of hospital charges should be examined.