Short Takes On News & Events

Expensive Hospitals: Strong Reputations But Little Evidence Of Better Care, Study Finds

By Jordan Rau

January 29th, 2014, 4:00 PM

A study of autoworker claims found that hospitals with the highest prices tended to have the strongest reputations and tight holds on their local markets yet showed little evidence of providing better quality care.

The actual prices insurers pay hospitals are closely guarded secrets in health care. That has made it hard for health researchers to study one of the most important issues: whether patients get better treatments from more expensive hospitals. Hospital list prices, which Medicare published last year, provide no indication about how much hospitals actually are compensated by private insurers.

In this study, published online Wednesday in the journal Health Affairs, researchers got a rare peek into hospitals’ real prices by analyzing nearly 25,000 insurance claims filed by current and retired auto workers in  10 metropolitan markets: Buffalo; New York; Cleveland; Detroit; Flint, Mich.; Indianapolis; Kansas City; St. Louis; Toledo, Ohio; Warren, Mich., and Youngstown, Ohio.

The workers went to 110 hospitals, which the researchers divided into three categories: 30 low-priced hospitals (with prices 10 percent or more below average); 30 high-priced hospitals (10 percent or more above average); and 50 medium-priced hospitals. The researchers adjusted their analysis to account for the different ailments that brought patients to the hospitals.

The study found high-priced hospitals were twice as large as the low-priced hospitals. Their market shares were three times as large as the low-priced hospitals, often through affiliations with large health systems. Market dominance is one of the major explanations for why some hospitals are able to extract higher prices from insurers during negotiations, since the insurers are reluctant to irk consumers by leaving these hospitals out of their networks.

The expensive hospitals were much more likely than other hospitals to win a national ranking for high quality from U.S. News & World Report, which relies strongly on doctor surveys in its analyses. In fact, the researchers found that none of the low-priced hospitals showed up on any U.S. News lists, while one out of four high-priced hospitals showed up on the list.

However, more qualitative, albeit rudimentary data, did not show expensive hospitals excelling. They performed worse than low-priced hospitals in keeping patients from being readmitted within a month and for avoiding blood clots and death in surgical patients. They also did no better in keeping heart attack and pneumonia patients alive than did low-price hospitals, although they were more successful in averting death for heart failure patients. Their overall ratings among patients were not significantly different than low-price hospitals.

The researchers — Chapin White, James D. Reschovsky and Amelia M. Bond — did not take a stand on whether the high prices were warranted, and they characterized the evidence as “mixed.” They noted it is possible that the expensive hospitals might offer much better specialized care, but the current quality measures do not assess those, instead focusing on the experiences of the routine patients.

Teaching hospitals made up nearly half of all the high-priced hospitals but only 17 percent of low-priced hospitals. The expensive hospitals tended to be in places where competitors were near rather than regions where they were the only facility around, even though in those isolated places insurers have no other options and therefore less negotiating leverage.

The researchers found partial justification for higher prices charged by these hospitals. They tended to treat sicker and poorer patients, often received referrals from other hospitals and were more likely to offer specialized, expensive services. And their operating margins were worse: the average loss was 2.8 percent, while low-priced hospitals had an average operating profit margin of 1.5 percent.

But when the researchers factored in all sources of revenue, including donations and investments, they found the total margins for high-priced hospitals were a healthy 4.5 percent, statistically no different than those of low-priced hospitals.

11 Responses to “Expensive Hospitals: Strong Reputations But Little Evidence Of Better Care, Study Finds”

  1. CIdelson says:

    Good stuff, but you missed this data released by nurses this month — it showed that hospital charges continue to skyrocket with some U.S. hospitals charging more than ten times their cost – nearly $1,200 for every $100 of their total costs. And it listed the hospitals that set the highest charges in the country

    Details at

  2. George Fulmore says:

    Emergency rooms will probably have to come under state and/or federal control. It seems right that one should expect equal services from every emergency room. Privilege is deeply engrained in health care, like schools. But unlike schools, there should be fewer variables with hospital services. All emergency rooms should meet minimum standards.

  3. Thomas says:

    CIDELSON: This story is about legitimate, independent research appearing in a well-respected health care journal. Your “study” was driven and promoted by a union agenda. No self-respecting journalist would ever compare the two.

  4. Dan says:

    “But unlike schools, there should be fewer variables with hospital services. All emergency rooms should meet minimum standards.”

    Why should schools have more variables / not meet minimum standards?

  5. John says:

    Why is it a surprise that “market dominance” due to horizontal and vertical consolidation would lead to anything other than higher prices? Hospitals are fixated on private payer price and profit maximization, which will get worse as Medicare/Medicaid, which pay non-negotiated, fixed prices, squeeze payment rates more. There is no anti-trust enforcement to stop the health system cartels from acquiring everything in a metro area that has health in its name (not to mention a lot of other poor investments). The ACA will make matters worse by encouraging huge, noncompetitive, networks. Upon acquisition of physician practices, the first thing hospitals do is to impose an additional “facility fee” in addition to the increased physician fees. Welcome to “patient centric” US medical care.

    Hospital CEOs are highly compensated based on top line revenue and bottom line profit. Affordability, efficiency, patient satisfaction count for very little in compensation incentives or corporate objectives.

    All major insurers post their payment rates for frequent procedures/tests by hospital or site of service. Price variance of 400+% within 25 miles is common in every market. The NYT has run several front page articles on payment rate variances by hospital and by country.

    ?? Do you think that we need a new paradigm to control health system cartel costs and privately financed prices, in the face of competitive market failure– i.e., rate regulation, as is done with utilities and other sectors where there is little competition?

  6. Tim says:

    ……and correlation does not prove causation, or lack thereof.

  7. john says:

    trash talking a nurses union is like trash talking a mommies group. yes there is no comparison between an academic study with an n number of 25k and a union of thousands of real life nurses with n numbers much higher. what is sad is equal pay for equal work does not occur and I believe research would show those responsible for better outcomes are not financially compensated. but rather than making money, making people better as part of a team is its own reward.

  8. CIdelson says:

    Thanks, John. And, Thomas, the NNU findings are based on publicly available data that the hospitals themselves report to CMS. If the hospitals are providing false information to CMS that would also be worth reporting.

    And, yes, nurses do have an agenda — they think price gouging is wrong, they see and take care of the patients who are unable to pay outrageous hospital bills or who skip needed care because of the high cost, and they are calling for our elected leaders to crack down on the practice. Sorry you disagree with that agenda.

  9. Lisa says:

    Also not mentioned is the fact that our ability to measure the quality of care in hospitals is in it’s infancy. To even think we can really compare a small hospital with a large teaching hospital with the rudimentary severity adjustment systems utilizing claims data adds to the unfortunate fact that we are not even close to being able to adequately compare the quality of care in hospitals. I have worked in the field for over 22 years and to this day I would personally rely on reputation if I moved to a new city. I would not rely on the public ally available quality or patient experience measures.

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  11. As a former Director of Health Planning for GA and retired hospital services company exec, I find this study to be highly misleading.
    Unless it can be determined that the same sorts of patients (i.e.intensity) were treated at small (less expensive) and large (more expensive) hospitals, it is impossible to judge outcomes (i.e. quality of care).
    In laymen’s terms, we are measuring apples and oranges becausse we have different types of patients.
    It does a disservice to lead with a flashy headline and then bury in the article the statement about the larger, more expensive facilities:
    “They tended to treat sicker and poorer patients,”