Can Public Reporting Cure Healthcare? The Role of Quality Transparency in Improving Patient-Provider Alignment

Increasing quality transparency is widely regarded as a strong mechanism for improving the alignment between patient choices and provider capabilities, and thus, is widely pursued by policymakers as an option for improving the healthcare system. We study the effect of increasing quality transparency on patient choices, hospital investments, societal outcomes (e.g., patients’ social welfare and inequality), and the healthcare market structure (e.g., medical or geographical specialization). We also examine potential reasons behind the failure of previous public reporting efforts, and use our analysis to identify ways in which such efforts can become more effective in the future. Our analytical and numerical results calibrated with data reveal that increasing quality transparency promotes increased medical specialization, decreased geographical specialization, and induces hospitals to invest in their strength rather than their weakness. Furthermore, increasing quality transparency in the short-term typically improves the social welfare as well as the inequality among patients. In the long-term, however, we find that increasing transparency can decrease social welfare, and even a fully transparent system may not yield socially optimal outcomes. Hence, a policymaker concerned with societal outcomes needs to accompany increasing quality transparency with other policies that correct the allocation of patients to hospitals. Among such policies, we find that policies that incentivize hospitals are usually more effective than policies that incentivize patients. Finally, our results indicate that, to achieve maximal benefits from increasing quality transparency, policymakers should target younger, more affluent, or urban (i.e., high hospital density area) patients, or those with diseases that can be deferred.