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Happy Patients and Profitable Hospitals

By May 20, 2016Commentary

Hospital revenues from Medicare are under pressure.  Hospitals respond by trying to cut costs and by getting more revenue, if they can, from private payers.  Accenture used Medicare data on patient satisfaction with hospital care experiences and on hospital revenues, costs and margins to see if there was a relationship.   (Accenture Article)   They found a clear correlation.  For example, hospitals with only 50% of patients giving a satisfaction score of 9 or 10 (on Medicare’s ten point scale) had an average margin of 1.3%.  Hospitals with 80% of patients doing so had a 6.3% margin and those with 90% had an 8.8% margin.  The correlation was nationwide and exists across all hospital types, but certain hospitals saw greater rates of margin improvement.  For-profits got an additional 3.3% of margin for each ten percent increase on the satisfaction scale; while non-profits received only 1.4% more margin for the same increase.  Urban hospitals experienced a 3.4% margin rise for the same satisfaction increase, while rural ones saw only a .4% one.  System hospitals also received a greater boost than did stand-alone ones.  The relationship between margin and satisfaction appears to growing over time.

But here is where correlation doesn’t turn into causation.  For the top 20% of patient experience hospitals, both revenues and costs are growing faster than average.  It is pretty obvious what is at work here, and it is demonstrated by previous research on the relationship between hospital market power, prices, and costs, especially marketing costs.  Large, mainly urban, hospital systems now often have market dominance which they use to achieve higher private prices and price growth.  Because of this revenue growth and market power, they don’t care as much about cost controls and they used their excess revenue to boost marketing spending, trying to create brand preference among consumers, usually by implying there is better quality at the system, which may or may not be the case.  They also put granite and fancy wood, etc. in the facilities.  So consumers tend to have at least a superficially better experience and because they believe the hospital is better, they are more inclined to say they had a better experience.  The bad news is that all that excess revenue and costs is driving up health spending growth.


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