Price Transparency Hearing — A Healthcare SEC??

Rep. Nancy Johnson (R-Conn.) chaired a House Ways and Means health subcommittee hearing on the topic of price transparency, a leading Administration initiative to control health care spending. The witnesses included

Regina E. Herzlinger, Ph.D., Nancy R. McPherson Professor of Business Administration, Harvard Business School, Boston, MA (whose work impresses me),
Robin Downey, Product Development Head, Aetna, Middletown, CT,
Daniel F. Evans, Jr., President and CEO, Clarian Health Partners, Indianapolis, IN,
Stephen Brenton, President, Wisconsin Hospital Association, Madison, WI, and
Ha T. Tu, Senior Health Researcher, Center for Studying Health System Change.

In her testimony, Prof. Herzlinger proposed the creation of an SEC for healthcare:

A Health Care SEC Societal Consequence of SEC-like Health Care Regulation The U.S. securities markets contain the characteristics desired for the health care:

  • Prices are fair in the sense that they reflect all publicly available information, despite the inability or unwillingness of many buyers to avail themselves of this information.
  • Buyers use this information to redirect capital so that it rewards productive firms and penalizes unproductive ones.
  • Information and competition continually reduce transaction costs.

The presence of these characteristics in health care would achieve two important social goals: First, they would help the uninsured and the underinsured. Second, they would divert money from health providers that offer a bad buy to those that offer a good one. The bad buy providers would shrink or improve. The good buy providers would flourish. How to Make it Happen The key to achieving these desirable characteristics in health care is legislation for a health care SEC that replicates these essential elements of the SEC model.

  1. An Independent Agency with Singular Focus. The SEC is an independent agency charged solely with overseeing the integrity of securities and the markets in which they are purchased. Because of these organizational characteristics, the SEC’s mission is not muddied–it is squarely lined up with the consumer–and it can be held clearly accountable for is performance.
  2. Penalties. The SEC is armed with powerful penalties for undercapitalized and unethical market participants, including imprisonment, civil money penalties, and the disgorgement of illegal profits. A corresponding health care agency would oversee the integrity and require public disclosure of information for health care.
  3. Private Sector Disclosure and Auditing. The SEC relies heavily on private sector organizations, which contain no governmental representation. The new health care agency should similarly delegate the powers to derive the principles used to measure health care performance to an independent, private, nonprofit organization that, like the FASB, represents a broad nongovernmental constituency. The agency would require auditing of the information by independent professionals, who would render an opinion of the information and bear legal liability for failure to disclose fairly and fully.
  4. Private Sector Analysis. The evaluation process is primarily conducted by private sector analysts, who disseminate their frequently divergent ratings. To encourage similar private sector health care analysts, the new agency should require public dissemination of all outcomes for providers, including clinical measures of quality, and related transaction costs.
  5. Focus on Outcomes, Not Processes. The SEC and FASB focus on measuring the financial performance of organizations. FDR firmly rejected dictating business processes or rating businesses as appropriate roles for the SEC.

The SEC is essentially a profit center, generating a substantial surplus from its filing and penalty fees, which offset its billion dollar budget.