Healthcare Business News

Recession didn't spur price increases at most not-for-profit hospitals: study

By Melanie Evans
Posted: March 6, 2013 - 3:45 pm ET

Most not-for-profit hospitals did not offset investment losses from the Great Recession by raising prices, according to a new study. Its authors say the finding suggests private insurers may not pay the price as hospitals bear new cuts in Medicare and Medicaid.

Hospitals that saw large losses did, however, curtail investment in information technology and unprofitable services, which included trauma care and treatment for drug and alcohol abuse, the authors wrote in a National Bureau of Economic Research working paper.

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A limited number of hospitals did raise prices, according to research conducted by David Dranove, director of Northwestern University's Center for Health Industry Market Economics, and Craig Garthwaite and Christopher Ody, assistant professors of management and strategy at Northwestern. Those hospitals likely had significant market clout, the paper said.

Austin Frakt, a health economist at Boston University, said the paper offers a timely look at hospitals' response to financial losses. Earlier research may not apply because hospitals' and insurers’ market power, and therefore hospitals' ability to demand higher prices from private insurers, may have changed.

The findings come as hospitals' face cuts to pay from Medicare, he said, and suggest that average hospitals could not or did not shift costs to private insurers as recently as a few years ago.

Frakt did note an exception identified in the study: Hospitals described as high quality did raise prices. Roughly 1 out of 5 patients received care at hospitals that raised prices after the 2008 investment losses.

However, Frakt said, recent consolidation among hospitals and other healthcare services could increase providers' leverage in price negotiations.

Hospitals' investment losses did not lead to layoffs for registered nurses, although stand-alone hospitals did cut licensed practical nurses to save money when the losses totaled 1% of operating revenue. The research did not find evidence that hospitals added more profitable services after investment portfolios dropped.

The study also suggests hospitals hardest hit by investment losses were more likely than those with smaller losses to put off investment in computerized physician order-entry technology. The analysis looked at hospitals without CPOE as of 2003, the first year the Healthcare Information and Management Systems Society began to track such investments.

The analysis included federal hospital financial data and other figures from the American Hospital Association and HIMSS. Critical-access hospitals were excluded because researchers lacked some data. For-profit hospitals and those owned by county or other governmental bodies were also excluded because they lack endowments.

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