The Incidental Economist at Health Affairs Blog summarizes a few studies on why there is significant in-market hospital pricing variations:
High-priced hospitals were not distinguishable from low-priced hospitals on most dimensions of quality…
However, high-priced hospitals were much more likely to be nationally ranked by U.S. News & World Report for ancer, cardiology, gynecology, or orthopedic care—often taken by patients as a measure of quality. However, according to the authors, those rankings “are based largely on hospitals’ reputations among physicians,” not on clinical indicators of high-quality care….
High-priced hospitals are also more likely to offer specialized services like neonatal intensive care, level 1 trauma care, heart transplants, and have a burn unit.
This is the halo effect. I described it when we talked about why Seattle Childrens Hospital was left out of network for most of the Washington State narrow exchange networks:
Why would insurers want to avoid flagship specialty hospitals? Wouldn’t that be a unique selling point that a plan offers full in-network access to the flagship academic and specialty medical centers in the region. It would be a differentiator that a place that can do seven organ transplants can also take care of basic care better. That would be the immediate logic, but there is a significant amount of research that shows more expensive flagship hospitals aren’t significantly better on routine care. Instead, they specialize in one-off and low probability cases that require very high end care, and use the lower intensity patients as a means to cover the capital and open the door costs required by the highest end care.
Patients use the existence of very high end care as a misleading proxy for quality. If they can transplant both lungs and a heart, they can do my single bypass better than a place that won’t do transplants… that is the logic. It is a false logic most of the time.
A major challenge going forward is shifting people down the cost curve of care while still maintaining effective care. A second challenge is if the first challenge is successful, finding a new financing model for the regional high end specialty and training centers. These centers currently rely on performing routine care at high prices to cross subsidize the very high end care that they’ve built their reputational halo on. If people shift from getting their ACL repaired, or a hernia fixed from a high price regional academic medical center to a community hospital, this cross-subsidization disappears. Yet we’ll still need a place in a metro area that can treat the aggressive cancers, perform transplants, and take care of trauma victims.
I’m not sure how to do that.