Study: High-Price Doesn't Mean High-Quality for Hospitals

High-price hospitals perform much better than their low-price counterparts on reputation-based quality rankings, but they don't fare so well when it comes to outcome-based measures, according to a Health Affairs study.

The study found high-priced hospitals are the clear winners when it comes to U.S. News & World Report rankings, which are partly (32.5 percent for the best hospitals of 2013 to 2014) based on their reputation with specialists; none of the low-priced hospitals studied was nationally ranked by U.S. News & World Report for cancer, cardiology or orthopedic care. However, low-price hospitals performed better on some measures of excess readmissions and patient safety.

Researchers uncovered these findings after analyzing 2011 facility claims for current and retired autoworkers and their dependents younger than 65 in 10 metropolitan areas. The study involved 110 short-stay, Medicare-certified hospitals reimbursed through the inpatient prospective payment system, with price calculations based on 24,187 inpatient stays.

The negotiated prices hospitals received from private health plans varied widely across markets; after accounting for the complexity of services provided, the researchers found the highest-price hospital in a market was typically paid 60 percent more for each inpatient stay than the lowest-price hospital. High-price hospitals tend to be larger, be major teaching hospitals and belong to health systems with significant market shares, according to the study. They also tend to offer specialized services such as level one trauma care.

One possible explanation for the dissonance between outcome-based and reputation-based rankings for high-priced hospitals is that these hospitals provide high-quality care but treat patients who are in poorer health and are more socioeconomically disadvantaged. High-price hospitals could also have built their reputations on tertiary care (which isn't factored into existing outcome measures) but don't excel at routine inpatient care. Or they might be highly esteemed among clinicians but are ultimately undeserving of their reputations. Further investigation is needed to pinpoint the reason, according to the study.

Study co-author Chapin White, PhD, a RAND Corp. senior policy researcher, says these findings have notable implications for health plans looking to contain costs by directing patients to providers with lower prices.

"There does seem to be an opportunity for health plans to steer patients to lower-priced hospitals without necessarily sacrificing on quality," he says. "There's more and more pressure to figure out some way to keep premiums down. There are huge price differences between different hospitals, and if a plan is sending people to lower-priced hospitals, it's going to be able to offer a lower premium."

However, high-price hospitals' dominant market positions, large size and membership in even larger systems make it hard for payers to negotiate lower prices, according to the study. And, because high-price providers have the best reputations, creating narrow networks that exclude them would likely displease health plan enrollees and physicians, according to Dr. White and his co-authors. Furthermore, it could leave patients signed up for the plan without in-network access to specialty services. For instance, few medium- or low-price hospitals provide level one trauma care.

"If you're running a health plan and you're negotiating with hospitals, there are going to be some hospitals, particularly big hospitals that offer specialized services, where it's going to be really difficult for the health plan to leave that hospital out," says Dr. White.

According to Dr. White and his colleagues, it remains to be seen whether health plans will somehow be able to gain the upper hand in negotiating lower prices with larger hospitals that currently dominate their markets. If they don't, "radical approaches" such as restrictions on contracts between hospitals and health plans and state-based rate setting may gain popularity as a way to rein in costs and health insurance premiums.

Note: This article was updated on Jan. 31 to reflect the correct weighting of U.S. News & World Report rankings. 

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