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Higher Hospital Prices Don't Equate to Better Patient Outcomes

Analysis  |  By Jay Asser  
   March 07, 2022

There was no observed correlation between higher-priced hospitals and higher quality of care in certain markets, a study by the National Bureau of Economic Research found.

Receiving care from higher-priced hospitals doesn't necessarily lead to better outcomes, according to research from the National Bureau of Economic Research (NBER).

The assumption that higher prices translate to better quality of care was challenged by the study, which found that the relationship between the two is largely dependent on location and market size of the hospital. Mortality rates decreased in hospitals with higher prices in only unconcentrated markets, while no correlation was observed with hospitals in concentrated markets.

The cost of care at hospitals has steadily climbed over the years as mergers of health systems have impacted the bottom line for patients. The Department of Justice has even blocked acquisitions in an effort to curb monopolies and the undermining of competition.

To quantify any perceived connection between hospital prices and patient outcomes, researchers from the NBER gathered data from June 2007 to June 2014 from the Health Care Cost Institute for individuals aged 18 through 64 with employer-sponsored insurance provided by Aetna, Humana, or UnitedHealthcare. To overcome selection challenges, the study used data of patients who were transported to the hospital by ambulance, as ambulances are effectively randomly assigned to emergency calls.

The final sample consists of 202,408 admissions among 171,432 patients that occurred at 1,814 hospitals, with the mean hospital price of $14,652 and the standard deviation at $4,634. The researchers also used the Herfindahl-Hirschman Index (HHI) to measure the market concentration of the hospitals, with the mean hospital HHI in the study being 4,327 and the HHI at the 25th and 75th percentile being 2,344 and 5,422, respectively.

Ultimately, the study found that in markets with an HHI of less than 4,000, receiving care from hospitals with two standard deviations higher prices resulted in a 35% reduction in in-hospital mortality. For each life saved in this instance, the cost was an additional $1.09 million in health spending, "suggesting that higher priced hospitals are likely saving lives cost effectively," according to the researchers.

In concentrated markets, however, the study concluded that higher prices are more indicative of patients' lack of options and not quality of care. But with approximately 69% of hospitals in the U.S. located in markets with an HHI of greater than 4,000, competition isn't geographically feasible, according to the researchers.

That raises the topic of price regulation and whether patients would benefit from policymakers stepping in. While the strategy has cost-saving potential for hospitals and patients, it could also adversely affect quality of care.

"Our findings suggest policymakers should use caution in regulating hospital prices in less concentrated markets. Regulating prices in these markets has the scope to lower clinical quality," the researchers wrote. "Finally, while we cannot rule out a positive or negative relationship between price and quality in concentrated markets, our results suggest policymakers should consider regulating providers' prices where competition is geographically infeasible."

Jay Asser is the contributing editor for strategy at HealthLeaders. 

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