Mr. Orszag, former director of the Office of Management and Budget in the Obama administration, wrote that a primary reason hospitals are so often deemed inefficient is because high-spending ones don’t seem to generate any better results than those hospitals that spend less. Furthermore, the current reimbursement system doesn’t punish inefficient hospitals.
But Mr. Orszag cited two studies that disprove this critique. One, led by economists from Harvard University, Massachusetts Institute of Technology and the University of Chicago, found hospitals with higher survival rates net of the cost of treatment actually ended up receiving more patients.
“More specifically, if in a given year hospital A had 10 percent higher productivity than hospital B, hospital A tended to have 25 percent higher market share that year and to experience 4 percent more growth over the subsequent five years,” wrote Mr. Orszag.
The researchers said competitive market forces could reallocate market share to higher productivity hospitals, or higher productivity hospitals may have other features, like attractive lobbies or good managers, that separately increase demand. “But whatever the driving force behind them, some force or forces in the healthcare sector lead it to evolve in a manner favorable to higher productivity producers,” the study authors concluded.
A second, separate study from the Institute of Medicine suggested the principal driver of variation in Medicare costs is not hospitals, but post-acute care. “Were it not for this regional variation in post-acute care, the overall Medicare spending variation would be 73 percent less,” wrote Mr. Orszag.
Mr. Orszag said he expects internal variation within hospitals, such as practice norms among physicians, to diminish within the next 10 years as healthcare transitions to pay-for-performance and digital records are more widely used. Still, until that happens, he says it is too soon to conclude hospitals are actually efficient.
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