The Effects of Hospital Quality and Charge Information on Open-heart Surgery Volume

As the US hospital system transforms toward value-based care, there is an increasing effort by the federal and state governments to push for greater quality and cost transparency. The expectation is that information about hospital quality and prices will help consumers make more informed decision and encourage hospitals to improve the quality of care they provide.

        However, continued consolidation in many hospital markets, and therefore decreased competitiveness, may compromise these effects. Patients in less competitive markets may not be able to effectively respond to changes in hospital quality and prices due to constraints such as distance to alternative hospitals, health plan network restrictions, access to information, and physician referrals. Existing research provides mixed evidence on whether information about hospital quality and charges influence consumer choices, but few studies have examined the extent to which the competitiveness of hospital markets affects patients’ response. 

        This paper examines how publicly reported quality scores and charges affect hospitals’ open-heart surgery volumes, and how these effects vary by the competitiveness of hospital market. We use hospital administrative data from Pennsylvania, a state that has released eight online reports since 1998, containing risk-adjusted quality and charges information of hospitals performing open-heart surgeries. We hypothesize that in markets with greater competition, hospitals receiving poor-quality and high-charge ratings in the past reporting period would experience decreasing volume in the current period. On the other hand, report card information would have little effect on hospital volumes in markets with low competition.

        We construct a composite quality score based on a hospital’s risk-adjusted in-hospital mortality, 30-day mortality, 7-day readmission, and 30-day readmission rates. To define high-charge hospitals, we use various cutoffs based on the top 10-, 20- and 30-percentile of the charge distribution in each report. We use a fixed-effects linear model with first-order autoregressive disturbance term to estimate the effects of the most recently reported quality and charge rating on hospital’s quarterly non-emergent procedure volume. 

        We find robust evidence that patient volume increases at hospitals with high quality scores and decreases at hospitals with higher charges, particularly in less concentrated hospital markets. When stratifying the total patient volume into FFS and non-FFS volumes, we find that while the FFS volume responds to both quality and charge ratings, the non-FFS volume only responds to charges data. We postulate that this is attributable to the lack of response to hospital quality by managed care plans in determining their provider network. We provide additional evidence to support this hypothesis by showing that hospitals with higher charges have fewer managed care contracts, but that the number of managed care contracts is not significantly correlated with quality ratings. These results lead to our conclusion that market competition steers patients to hospitals with better quality and lower cost when choosing open-heart surgeries, although network restrictions in managed care plans may have limited patient’s ability to respond to hospital quality changes.