Hospital prices more correlated to reputation, market share than quality, study finds

Hospitals that charge higher prices for inpatient care do not necessarily rank higher than their lower-priced peers on objective measures of quality, a Health Affairs study found. But what they do have is market clout.

The wide variation in hospital prices was highlighted last year when the CMS released billing data for common inpatient and outpatient procedures. Hospitals responded at the time that the data only represented chargemaster prices and were not a reflection of what they actually receive for their services.

For the Health Affairs study, which was funded by the nonpartisan National Institute for Health Care Reform and expanded on an issue brief from the Center For Studying Health System Change published last fall, researchers looked not at posted charges but actual negotiated prices paid by private health plans. They analyzed 2011 claims data submitted for nonelderly active and retired autoworkers and their dependents in 13 Midwestern markets.

In a typical market, the highest-price hospital received 60% more for inpatient care than the lowest-price one, the study found. These hospitals had a number of characteristics in common. They tended to be larger, averaging 474 beds—twice the number of beds at low-price hospitals. Or they belonged to a system with a large market share.

Half of the high-price hospitals were major teaching hospitals (compared with 17% of low-price hospitals), and they provided a greater number of specialized services, such as heart transplants or Level 1 trauma care.

The insurance industry has long argued that hospital prices are the major driver behind premium increases. The study sought to discover why some hospitals have more negotiating power than others.

It didn't find the answer in hard quality metrics; on some measures, like 30-day readmissions and postsurgical deaths, high-price hospitals actually performed worse than their low-price counterparts. On others, like 30-day mortality, they performed the same.

However, high-price hospitals fared significantly better on reputation rankings such as those published by U.S. News and World Report. That led the authors to speculate that these hospitals are a “must have” for insurance networks, and health plans could face pushback if they tried to steer patients to lower-priced options.

In other cases, that “must have” status came from being the dominant player in the market. The high-price hospitals were part of systems that saw an average 28% of all inpatient days in the market.

But the authors also found support for other, mission-based explanations behind why some hospitals charge more than others. For instance, high-price hospitals were more likely to treat low-income patients, offer an extensive array of specialized services and provide more medical education opportunities than low-price facilities.

The study follows a 2010 analysis from the Massachusetts attorney general's office, which similarly found wide variation in prices but no correlation between price and quality of care.

Follow Beth Kutscher on Twitter: @MHbkutscher