Do pricier hospitals lead to better care?

To understand the perceived correlation between hospital prices and patient health outcomes, the authors gathered insurance claims data from the Health Care Cost Institute between June 2007 and June 2014 on individuals ages 18 through 64 who had employer-sponsored health insurance. To overcome selection challenges, they used data on patients who were taken by ambulance to high- and low-priced hospitals. Ambulances are selected randomly to respond to emergency calls. The authors found that patients receiving care from higher priced hospitals reduces in-hospital mortality by about 35 percent. However, this finding between higher prices and lower mortality only exists at hospitals in less concentrated markets where hospitals face more competition. By contrast, patients receiving care from expensive hospitals in­­ concentrated markets spend substantially more for the care with no noticeable effect on their mortality.

The authors discovered that, in both concentrated and unconcentrated hospital markets, receiving care from high-priced hospitals increased health costs by approximately 52 percent. When patients went to pricier hospitals in concentrated markets, their costs went up, but health outcomes did not improve. In unconcentrated or more competitive markets, patients who were treated at a higher priced hospital led to higher spending, but it also reduced mortality by 47 percent for time-sensitive conditions such as heart attacks. In other words, in these competitive markets, patients spend 52 percent more, but they are 47 percent less likely to die.

In their sample, Cooper and colleagues applied the Herfindahl-Hirschman Index (HHI) that measures the market concentration of hospitals. The mean hospital HHI in the study was 4,327. Ultimately, they found that in markets with an HHI of less than 4,000, receiving care from pricier hospitals resulted in just over a 1-percentage-point reduction in in-hospital mortality. For each life saved, the cost was an additional $1 million in health spending, leading the researchers to suggest that saving lives in higher priced hospitals likely saves costs. Receiving care from similarly pricier hospitals, however, with HHIs greater than or equal to 4,000 had no effect on mortality. Although care from these hospitals generated additional spending, it did not change patient health outcomes.

Evidence shows that in these concentrated hospital markets, higher prices may not reflect higher quality of care but instead a lack of alternative options. The authors suggest that policymakers should consider regulating prices at hospitals in concentrated markets, which may help protect patients against higher prices when their care options are limited.

In addition, the authors find that seeking care at pricier hospitals will not necessarily improve patient health outcomes. Instead, health outcomes may improve if the hospital is in a less concentrated market with more competition or in a concentrated market with heavy consolidation.