Jan. 31—High-priced hospitals had higher readmission rates and sicker patients than those with low prices, according to a new study.

The study,  published in Health Affairs this week and funded by the National Institute for Health Care Reform, was unusual in its use of private insurance claims to examine the relationship between hospital characteristics and pricing power. The study used 2011 facility claims for current and retired autoworkers and their dependents ages 65 and under to focus on quality outcomes and price at 110 hospitals with varying market characteristics in 10 metro areas.

The highest-priced hospitals--which were more likely to be large, major teaching hospitals, and part of systems with large market shares--had higher rates of excess readmissions and worse postsurgical death rates and blood clot outcomes than lower-priced hospitals.

The high-price hospitals had results similar to others s in 30-day mortality rates for heart attack and pneumonia.

Lower-priced hospitals, which averaged half in size and were more likely to be rural, had worse 30-day mortality rates among heart failure patients than their high-priced peers.

The study, by researchers from RAND Corporation, Mathematica Policy Research, and the Wharton School at the University of Pennsylvania, also found large hospitals treat many more low-income patients and provide more charity care.

Patient and service mix differences of high-priced hospitals contributed to worse operating margins than those with lower prices (-2.8 percent, compared with 1.5 percent). However, total margins were much closer between high- and low-price hospitals (4.5 percent versus 5.6 percent) after revenue from sources other than patient care reimbursement was considered.

Cost Driver Implications

The study authors concluded that their data provided some support to differing explanations for hospital price variations. Specifically, the data supported the contention of high-price hospitals that their costs are driven by organizational missions that included more medical education, more specialized services, and care for a higher percentage of low-income patients.

But the authors said their data also supports the contention of insurers that hospital consolidation is driving cost increases because higher prices were associated with dominant market positions, large size, and membership in systems.

Among other conclusions, the authors warned that the data indicates possible adverse financial impacts on patients from the growing healthcare finance trends of more narrow and tiered provider plans. 

Specifically, very few hospitals identified in the study as medium- or low-priced provide Level I trauma care, such as neonatal intensive care. Limiting network plans to those hospitals “would expose plans to very high hospital charges and expose enrollees to balance billing—that is, financial liability for charges exceeding the plan’s payment for out-of-network care.”

Rich Daly is a senior writer/editor in HFMA’s Washington, D.C., office. Follow Rich on Twitter: @rdalyhealthcare.


Publication Date: Friday, January 31, 2014