High Hospital Prices Do Not Always Lead to Better Health Outcomes

Receiving care from higher-priced hospitals only led to better health outcomes when the facility was in a relatively unconcentrated market. There was no association between high prices and mortality at hospitals in concentrated markets, according to a study published in the National Bureau of Economic Research (NBER).

As hospital prices continue to rise, experts have noted that regulating prices in areas with high competition helps improve patient outcomes, if reimbursement rates exceed marginal costs.

However, hospital prices are typically unregulated and market-determined, in which case the level of market competition can impact costs and quality of care.

To understand the correlation between hospital prices and patient outcomes, researchers gathered claims data from June 2007 to June 2014 from the Health Care Cost Institute (HCCI) for individuals aged 18 through 64 years who had employer-sponsored health insurance. The data reflected instances when patients were admitted to the hospital via ambulance or had an emergency condition for which they could not delay treatment.

The final sample consisted of 202,408 admissions among 171,432 patients at 1,184 hospitals. The mean hospital price was $14,652, but the researchers said there was substantial variation across claims.

The researchers also noted the Herfindahl-Hirschman Index (HHI) of the hospitals, which measures market concentration. The mean hospital HHI was 4,327, while the HHI at the 25th and 75th percentiles were 2,344 and 5,422, respectively.

The results revealed that hospitals with higher inpatient prices had a 35 percent reduction in in-hospital mortality, but only when the hospitals were in an unconcentrated market.

In addition, each life saved at a high-priced hospital with an HHI of less than 4,000 costs an additional $1.09 million in health spending, which is significantly lower than the $8.7 million estimation from the Environmental Protection Agency, the study noted.

Receiving care from similarly high-priced hospitals with HHIs greater than or equal to 4,000 did not have any impact on mortality, researchers found. Care from these hospitals generated additional spending, but it was not cost-effective as patient health outcomes did not change.

The study indicated that high prices in concentrated markets likely reflect the lack of care options that patients face and do not signify higher quality care.

The results suggest that seeking care at higher-priced hospitals will not necessarily lead to better health outcomes. Instead, it matters if the hospital is in a less concentrated market with great competition or a concentrated market with heavy consolidation.

“This comparison of high- and low-priced hospitals provides insights into the functioning of healthcare markets and should directly inform the current debate over price regulation,” researchers wrote.

Policymakers have pushed for price regulation in hospitals across the country, with recommendations to implement hospital price caps that would set reimbursement rates at a fixed percentage of Medicare reimbursements, according to the study.

In particular, policymakers should consider regulating prices at hospitals where competition is geographically impossible, researchers said. This could help protect patients against high prices when their care options are limited.

The hospital price transparency rule also aims to inform consumers of hospital prices before receiving care, though few facilities comply with the policy.

The study results also highlighted the importance of antitrust enforcement and how it could lead to better outcomes in hospitals where competition is geographically possible.

“Our findings suggest policymakers should use caution in regulating hospital prices in less concentrated markets,” the study stated. “Regulating prices in these markets has the scope to lower clinical quality.”

By enforcing antitrust measures, officials can help prevent hospitals from creating monopolies on care delivery in a specific area.

Imposing stricter regulations on merger and acquisition deals may also help preserve competition and avoid rising prices. Although healthcare mergers and acquisitions typically aim to lower costs and improve care quality, the Department of Justice has blocked deals under the pretense that they would harm competition and raise prices.