The Effect of Quality Rating on Surgery Prices, Volume, and Managers’ Compensation: Evidence from Hospital and Nursing Home Markets
This session contains three papers that explore the effects of publicly reported quality ranking on hospital prices, patient volume, and nursing home managers’ compensation. The first paper examines the extent to which hospital prices for cardiac procedures are affected by on-line Hospital Compare (HC) quality rankings, the nation’s largest quality reporting initiative to date. The authors find that while the initiation of HC slowed the overall rate of increase in related prices, high-quality hospitals were able to leverage a quality “premiums” which helps to offset the general pricing pressure almost fully. The second paper examines how quality and charge report cards affect hospitals’ open-heart surgery volumes in Pennsylvania. The authors find robust evidence that hospital’s procedure volume increases with high-quality rating and decreases with high-charge rating, and that these effects tend to concentrate in relatively competitive hospital markets. In addition, the non-fee-for-service volume responds to charge, but not quality data. The authors conclude that while market competition steers patients to hospitals with better quality and lower cost when choosing open-heart surgeries, network restrictions in managed care plans may have limited patient’s ability to respond to hospital quality changes. The third paper examines the differential weights on financial and quality performance in nursing home managers' compensation. Utilizing the implementation of 5-star rating system in 2009 as the difference-in-differences strategy, the authors find that managers' compensation is not tied to either financial or reported quality measures. Rather, compensation is positively correlated with experience, firm size, occupancy rate, and payer mix.