Expensive hospitals aren’t better hospitals

Welcome to Health Reform Watch, Sarah Kliff’s regular look at how the Affordable Care Act is changing the American health-care system — and being changed by it. You can reach Sarah with questions, comments and suggestions here. Check back every Monday, Wednesday and Friday afternoon for the latest edition, or sign up here to receive it straight from your inbox. Read previous columns here.

It's a pretty decent rule of thumb for most shopping: When you want something better, you pay more money.

The Ritz-Carlton charges more for its upscale accommodations than a Motel 8. First-class seats on an airplane are a heck of a lot more expensive than coach; bigger houses cost more than smaller houses; and so on.

But health care is no normal market. And while more expensive hospitals tend to have higher prestige and brand-name recognition, a new study in the journal Health Affairs finds no clear evidence that these hostpitals are actually providing better health care.

Hospitals with the highest prices tend to do great in prestigious rankings, such as the U.S. News and World Report annual list of best hospitals. And they also have a pretty good hold on their local markets. But start comparing care at more expensive hospitals with their less pricy competitors, and you don't find any clear relationship between high cost and high quality.

"I see this paper as laying out a clear relationship between how big a hospital is and its market leverage," RAND researcher and lead study author Chapin White says. "The relationship between quality and price is murkier. It's not at all obvious that when you're buying services at a higher price hospital you're getting higher quality."

For his research, White had the unique advantage of being able to look at the actual prices that 110 hospitals, spread across 10 largely Midwestern states, charged a large auto manufacturer's health plan. Typically, this information is proprietary and closely guarded by hospitals, who don't want their competitors to know the rates they charge their patients. While White's paper doesn't reveal specific hospitals' rates, it does compare them against their market share, rankings and a set of quality metrics.

The average low-price hospital charged 77 percent of the overall average price for the entire group of providers. The average high-price hospital charged 1.3 times that average.

On market share, there's a clear relationship: Hospitals that are bigger (whether by marketshare or number of beds) tend to charge higher prices.



Large hospitals often have more leverage in negotiating high prices with insurers because they offer services that their competitors don't, like, for example, more advanced trauma centers. That makes it harder for insurance plans to keep them out of network.

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Insurers seem to be paying for services they can't go without, but are they also paying for quality? That's where it gets less clear. White looked at how expensive hospitals fared in the U.S. World and News Report rankings and found they were more likely to show up on that list. But here's something important to note: The U.S. News list relies partially on health outcomes (death rates for the most demanding cases, according to their site) and partially on what other doctors think about that hospital. So the rankings are as much a measure of prestige as they are of actual care delivered.

White and his team looked at specific health outcomes, including deaths among patients with complex surgeries, accidental cuts and tears during medical treatment and readmission rates for a handful of conditions. What they found was, well, no clear relationship between price and outcomes. None of the low-price hospitals made the U.S. News list, but they didn't seem to do worse on quality of care than the high-priced competitors.


"I think these findings definitely suggest that health plans could reduce their spending by steering people to lower-priced hospitals," White says. "And patients wouldn't necessarily be worse off or getting lower quality, even though they're going to lower-priced hospitals."

Whether that's possible in reality is tough to game out. There's been lots of backlash to the relatively limited networks of health plans sold through the new exchanges -- the ones that are pretty much trying to do exactly what White suggests: Steer patients toward lower-cost hospitals.

At the same time, these are the tools that help hold down premiums. And White argues that, as health costs continue to rise, we may see a patient population more willing to trade their prestige hospitals for lower premiums, especially when the prestige hospitals don't actually have better care outcomes.

"People don't like narrow network plans that may only include hospitals that aren't fancy," White says. "Some are reluctant to enroll in the plan that doesn't have the fancy hospital. My general impression, though, is that people are realizing more and more that fancy doesn't equal better. I think as we get better at measuring quality, plans may be able to do more to reassure patients that the non-fancy hospitals are just as good. It may not be fancy, but you're not going to die as a result of going there."
 

KLIFF NOTES: Top health policy reads from around the Web 

Obama administration says ACOs have saved millions. "Nearly half of the 114 hospitals and doctor groups that began Accountable Care Organizations under the health law in 2012 managed to slow Medicare spending in their first year, but only 29 of them saved enough money to qualify for bonus payments, the Centers for Medicare and Medicaid Services said Thursday. CMS called the results "very promising"—particularly for the first year of a program that involved significant changes in the delivery of health care. But the fact that more than half the ACOs didn't achieve savings underscores the challenges that remain in curbing health-care costs this way." Melinda Beck in the Wall Street Journal

Some Californians are seeing 25 percent rate hikes -- and not because of Obamacare. "Thousands of Anthem Blue Cross individual customers with older insurance policies untouched by Obamacare are getting some jarring news: Their premiums are going up as much as 25%. These increases, 16% on average, are slated to go into effect April 1 for up to 306,000 people — unless California regulators persuade the state's largest for-profit health insurer to back down." Chad Terhune in the Los Angeles Times.

Colorado's co-op plan has netted 10 percent of the state's sign-ups. "The Colorado HealthOP, a new member-run health insurance co-op, said nearly 7,500 patients have signed up so far for its new health insurance plans. 'It’s really a vote of confidence for a consumer-operated health plan. People are interested in taking control of their health and health care, and are hungry for a different model,' said Julia Hutchins, CEO of the HealthOP. The HealthOP is the only insurance carrier in Colorado to release its enrollment numbers since Colorado’s exchange opened on Oct. 1. Both Colorado’s health exchange, Connect for Health Colorado, and the Colorado Association of Health Plans declined to release other industry enrollment numbers. Altogether about 67,000 individuals or small business employees have bought private plans through Colorado’s exchange as of late January." Katie Kerwin McCrimmon in Health News Colorado.

 

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