Transparency and Negotiated Prices: The Value of Information in Hospital-Supplier Bargaining

We empirically examine the role of information in bargaining between hospitals and suppliers. Using a new data set including all purchase orders issued by over ten percent of US hospitals 2009-14, and differences-in-differences identification strategies based on both timing of hospitals’ joining a benchmarking database and on new products entering the market, we find that access to information on purchasing by peer hospitals leads to reductions in prices. These reductions are concentrated among hospitals previously paying relatively high prices relative to other hospitals and for products purchased in relatively large volumes, and appear to result from solving asymmetric information problems between hospitals and their suppliers. The results have implications for the emerging role of “information intermediaries” in business-to-business bargaining and calls for transparency in medical device pricing specifically. ∗This paper benefited from comments from Robin Lee, Ali Yurukoglu, and audiences at ASSA, Bates White, University of California-Berkeley, Cornell, Dartmouth Winter IO Conference, Harvard, iHEA, Indian School of Business, University of Louisville, NBER Spring Health Care, NBER Summer IO, Queens University, Triangle Health Economics Workshop, and Wharton IO Brownbag. We gratefully acknowledge financial support from the Wharton Dean’s Research Fund and Public Policy Initiative. Biruk Bekele, Chetna Johry, and Jake Lahr provided excellent research assistance. Any errors are our own.