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Public reporting of medical treatment outcomes is being widely adopted by policymakers in an effort to increase quality transparency and improve alignment between patient choices and provider capabilities. We examine the soundness of this approach by studying the effects of 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). Our results offer insights into why previous public reporting efforts have been less than fully successful and suggest ways in which future efforts can be more effective. Specifically, our analytical and simulation results calibrated with empirical data from the Centers for Medicare and Medicaid Services reveal that increasing quality transparency promotes increased medical specialization, results in decreased geographical specialization, and induces hospitals to invest in their strengths rather than their weakness. Furthermore, increasing quality transparency in the short-term typically improves social welfare and reduces inequality among patients. In the long-term, however, we find that increasing transparency can decrease social welfare, and fail to yield socially optimal outcomes, even under full transparency. Hence, a policymaker concerned with societal outcomes should accompany increasing quality transparency with other policies that correct the allocation of patients to hospitals. Among these, we find that policies that incentivize hospitals are generally 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 requiring nonemergency treatment.