U.S. Needs an SEC for Its Health Care System: Opinion

By Regina Herzlinger, Bloomberg Opinion | August 24, 2020

The U.S. health care system suffers from a lack of transparency. Employers, insurers and individual consumers pay varying prices for treatments, drugs and digital information of varying quality, without knowing whether the prices are relatively high or low, or whether they receive good value for the money. This protects providers from needing to compete on the price and quality of their care. Lack of competition, in turn, inflates the cost and probably also diminishes the quality of health care.

President Donald Trump’s administration has begun to shine a light on the situation by requiring hospitals to publish their charges. Beginning next January, they must do so in a manner that consumers can easily understand. The required information includes the rates hospitals negotiate with insurers. And insurers, for their part, will need to reveal how much they pay both in-network and out-of-network providers, and disclose consumers’ cost-sharing liability.

Hospitals and insurers lost their lawsuit to prevent these new rules from coming into effect, but say they will appeal. And their lobbying clout is great enough to defer and/or weaken implementation. But even if the rules hold up, they aren’t sufficient to provide the full accounting of prices and outcomes the health care system needs. For that, the U.S. needs a health care analog of the Securities and Exchange Commission.

For more than eight decades, the SEC has brought transparency to the financial system, policing the market to ensure that no investor benefits from having special information that others don’t have. As a result, in the securities markets, prices reflect substantially all publicly available information, and buyers can see which companies provide good value for the money. By establishing trust in the information, this system has lowered the cost of capital, and enabled better allocation of investments in public companies.

Suppose the health care system could similarly gather and publish relevant data on health care prices and outcomes. Then consumers could see which clinicians, hospitals, insurers and others provide the best value. The good ones would thrive, and the bad ones would have to either improve or go out of business.

A health care SEC would demand and collect all prices and data on outcomes, and require certified, independent appraisers to attest that the numbers comply with accepted measurement standards — just as independent members of the accounting and finance professions and public companies must provide accurate, relevant data about the economics of corporations. Independent analysts would then use these data to rate providers (more or less as private businesses such as Morningstar rate mutual funds).

The SEC works well. It doesn’t micromanage business processes; it provides transparency on outcomes. It relies on private-sector analysis. It imposes severe penalties for unethical market behavior, and it raises money for its operations with filing fees and fines.

The Financial Accounting Foundation, which oversees the SEC’s measurement standards, finances itself from sales of publications by market participants, and from fees. (Its 2019 budget was about $63 million.) As an independent agency with a singular focus, the SEC is accountable for its mistakes, and has been able to fix various problems that have arisen over the years.

A health care SEC would have many issues to work out: It would need to establish standard definitions for specific quality measurements. Risk-adjusters would need to develop ways to compare providers’ performance at widely varying practices (high-risk specialists versus doctors who treat patients with less severe ailments, for example). Uniform raw data on health care outcomes would need to be gathered.

These challenges are not insurmountable, but they would take time and experience to resolve. The SEC successfully addressed similar challenges in creating its reporting system, EDGAR. Contrast the accessibility and fullness of the data on EDGAR’s website with what information exists on health care quality and cost.

President Franklin D. Roosevelt created the SEC as a “truth” agency to disclose all material facts about the finance industry. Health care increasingly needs a truth agency, too, and the SEC is an excellent model.

About Regina Herzlinger, Bloomberg Opinion

Regina Herzlinger is the McPherson Professor of Business Administration at Harvard Business School, where she teaches and researches health-care innovation.

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