Pricing of Hospital Cardiac Procedures: Impacts of Federal Quality Reports
To fill this gap we examine the impact of HC by the quality rankings as reported on-line. We estimated variants of DDD models that allow for varying policy based on treatment intensity (Finkelstein, QJE 2007). States that had similar report card systems prior to the initiation of HC form the control group. We consider the effect of main HC quality scores (heart attack, heart failure, and pneumonia mortalities) separately and combined on prices of two major cardiac procedures: heart bypass surgery and angioplasty in the years 2005-2011. Using a large national claims dataset for privately insured patients allows us to identify actual payments to hospitals (transaction prices), and large patient-year samples (n=17,900 and 53,300, for bypass surgery and angioplasty respectively) from approximately 1,100 hospitals.
We estimated the models with two different specifications: linear models using the two-step generalized method of moments (GMM) estimator and nonlinear models using generalized linear modeling (GLM), log link function with gamma distribution, controlling for patient and plan characteristics, and hospital fixed effects. We find an overall effect of HC initiation to be in the range of -16.2 to -19.1 percent for heart attack prices, but 6.3-6.9 percent for angioplasty prices. However, for the category of high quality hospitals, there was a quality “premiums” which helped offset the general price effects almost fully. We conclude that HC was effective at leveraging competitive downward pressure on prices without penalizing high performers.