Why American Health Care Needs Its Own SEC
The United States needs a health care equivalent of the Securities and Exchange Commission to increase transparency and competition, argues Regina Herzlinger.
Employers, insurers, taxpayers, and individual consumers pay widely varying prices for treatments, medical technology, and for digital information of fluctuating quality. One patient may receive a small charge for a treatment, while another patient’s bill soars through the roof for the same medicine. They do not know if they received good value for the money. [...]
Partially as a result of this lack of transparency, increases in employers’ health care costs have outstripped inflation and workers’ wage increases for decades. Employees unwittingly pay more and more for insurance, technology, and services of unknown quality.
The lack of transparency protects providers and insurers from needing to compete on the price and quality of their services. Lack of competition, in turn, inflates the cost and probably also diminishes the quality of health care.
Some steps in progress may help. President Donald Trump’s administration is requiring hospitals to publish their charges in a way that consumers can easily understand, starting in January. The required information includes the rates hospitals negotiate with insurers. For their part, insurers 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 block these rules from coming into effect, but say they will appeal. Their lobbying clout is powerful enough to defer or weaken implementation.
"THEN CORPORATIONS COULD SEE WHICH CLINICIANS, HOSPITALS, INSURERS, AND OTHERS PROVIDE THE BEST VALUE."
Even if the Trump rules hold up, they cannot provide the full accounting of prices and outcomes the health care system needs. For that, the United States needs a health care analog of the Securities and Exchange Commission.
Why health care needs an SEC equivalent
For more than eight decades, the SEC has brought transparency to the financial system, policing the market to ensure robust disclosure that complies with Generally Accepted Accounting Principles(GAAP). The SEC has clout; those who do not comply with GAAP can wind up in jail or pay hefty fines.
Its accounting principles are derived from an exhaustive public process overseen by experts in measurement, not like the stakeholders of present “transparency” who are interested in protecting their piece of the pie. 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 corporations 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 could collect data on prices and outcomes that comply with its measurement standards, and certified, independent appraisers could 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 use these data to rate providers—similar to how private businesses such as Morningstar rate mutual funds.
The SEC works well. It doesn’t micromanage business processes. Rather, it provides transparency on outcome, relies on private-sector analysis, and imposes severe penalties for unethical market behavior. Along the way, 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 fees. (Its 2019 budget of $63 million seems meager in relation to its influence.) As an independent agency with a singular focus, the SEC is accountable for its mistakes and readily fixes problems that arise.
Messy work ahead
Nevertheless, a health care SEC would have many issues to work out. It would have 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 needs to be collected.
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 robust 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.
The business community should embrace this model to help solve its long-standing, unresolved issues with health care costs, quality, and access.
A version of this commentary was first published by Bloomberg and adapted for use onWorking Knowledge by the author.