Hospital Cost and Quality

Hospitals are under fire for the role their pricing has played in the growth of health spending in recent decades.  While all health spending growth has moderated, hospital unit prices remain the most significant driver of that growth and continued consolidation causes fears that that price growth may even accelerate in coming years.  A Health Affairs study looks anew at hospital pricing variability and associated characteristics, including quality.  (HA Article)   The authors used an autoworkers’ health plan claims database to identify hospital pricing and then used other databases to identify characteristics of the hospitals and explore the relationships between the two.  Some hospitals claim they serve a large number of poor or sick patients or do a lot of teaching to explain their high prices.  But the authors found that market power was more likely the reason.  The analysis covered 100 hospitals, thirty were low price, 50 were near the median and 30 were high price.  The low price hospitals were about 23% below the average price and the high priced ones were 30% above the average price.  Medicare adjusts its prices for treating the poor and having a teaching mission, but the high price hospitals had prices much more above what Medicare pays than did the low price ones.  The high price hospitals tended to be large, urban and have high market shares.  They also were more likely to offer specialized services and to be for-profit.  They tended to have higher commercial patient ratios.  Most importantly their costs were higher and it seems likely, as other research suggests, that being able to charge high prices makes them spend more money rather than high costs driving high prices.  These high-price hospitals are not efficient in any sense of the word; they use more resource input units for services and higher cost units.  One could place to start to control this would be to cut executive pay and excessive administration in the high-price non-profit hospitals.  And for all their high price, these hospitals did not generally have better quality measure performance, consistent with the notion that they are just inefficient.