IMPACT OF MEDICARE’S HOSPITAL COMPARE QUALITY REPORTING SYSTEM ON HOSPITAL PRICING

Previous research found that the initiation of Hospital Compare (HC) quality reporting had little impact on patient outcomes. However little is known about its impact on hospital prices, which may be significant since insurers are positioned to respond to quality information from public reporting when engaging hospitals in price negotiations. To explore this issue we estimate variants of difference-in-difference models, allowing HC impacts to vary by levels of quality scores. We separately examine the effects of the three main quality scores (heart attack, heart failure, and pneumonia adjusted mortalities) on transaction prices of two major cardiac procedures: bypass surgery (CABG) and angioplasty (PCI). Centered around the initiation of the HC indicators in 2008, our analysis spans the period 2005-2010, tracking 26,000 and 55,000 privately insured patients undergoing these procedures. States which had mandated reporting systems preceding HC form the control group. Analyzing a unique claims data privately insured patients linked to Hospital Compare, we find that HC exerted downward pressure on prices, which we attribute to competitive pressures. However, hospitals ranked “above average” received higher prices (approximately 20% higher in the case of CABG), thereby offsetting the overall policy effect. All effects where highly significant but larger when the quality measures associated with heart attacks and heart failures were employed. This was expected given their relevance to the procedures studied, further underscoring the relevance of use of publicly reported information in hospital pricing. We conclude that HC was effective at constraining prices without penalizing high performers, and suggest that health care markets respond rationally to injection of information. Our results also carry implications for health care reform, since in tandem with the ACA, quality reporting under Hospital Compare is being expanded with a view towards improving patient choice and reigning in hospital costs.