High-Priced Hospitals: Bigger, Not Necessarily Better
Data sources and methods: The study used 2011 facility claims for current and retired autoworkers and their dependents under age 65 to measure inpatient price indexes for 110 hospitals. A hospital's price index equals the total amount paid to the hospital divided by a hypothetical total amount calculated by combining the hospital's DRG mix with all-hospital average prices for each DRG. Hospitals were included if: 1) they were short-stay Medicare-certified hospitals paid under the inpatient prospective payment system, 2) they provided a significant volume of care to the autoworker population (20 or more discharges), and 3) they were located in one of 10 markets (metropolitan statistical areas) in the Midwest with large autoworker populations. Hospitals were classified as low-, medium-, or high-priced if their price index was below 90%, between 90% and 110% or greater than 110% of the median-priced hospital in their market, respectively. Hospital characteristics, financial data, and membership in hospital systems were measured using Medicare hospital cost reports and the 2011 American Hospital Association survey. Hospital quality was measured using risk-adjusted 30-day mortality rates among Medicare beneficiaries, and selected AHRQ patient safety indicators, both reported in Hospital Compare. Hospitals in the three price groups were compared using means and t-tests.
Key findings: High-priced hospitals, compared to other hospitals, tend to be larger, and are more likely to be major teaching hospitals, to belong to systems with large market shares, and to provide specialized services, such as transplants and level I trauma care. High-priced hospitals averaged 474 staffed beds, more than double the size of the low-priced hospitals, and high-priced hospitals have market shares about three times as large as low-priced hospitals. Affiliations with larger hospital systems appear to add to high-priced hospitals’ market share and negotiating leverage. High-priced hospitals are members of hospital systems that, on average, account for 28% of all staffed beds in their market, more than double the percentage associated with low-priced hospitals. High-priced hospitals also receive significant revenues from non-patient sources, such as state Medicaid disproportionate share hospital (DSH) funds, and have healthy total margins. Quality indicators for high-priced hospitals were mixed. High-priced hospitals fared much better than low-priced hospitals in the U.S. News and World Reports rankings, which are largely based on reputation. But, high-priced hospitals generally scored worse on objective measures of quality, such as post-surgical mortality rates.
Conclusion: These findings help explain why purchasers face major obstacles when they attempt to steer patients away from high-priced hospitals. Those hospitals enjoy strong clinical reputations and offer specialized services that may be unique in their markets.