Hospitals and Halo effects

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.

21 replies
  1. 1
    WereBear says:

    It’s the distortions of capitalism which require a transplant center to pull out splinters at Trump prices. Can’t they get enough deluded billionaires with boils on their bums to keep the doors open?

  2. 2
    catclub says:

    Speaking of halo effects, did anyone hear the NPR item on detecting retinal blastoma by white in the pupils, and trying to get camera software to do it? Also related to retinas: crowdsourcing retinal nerve mapping. Also heard on NPR.

  3. 3
    NonyNony says:

    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.

    This would be the place where government subsidy should come into play, since this is the kind of public good that should be funded with public dollars.

    Sadly we’re not allowed to do that in this country, but that’s a solution that should be workable.

  4. 4
    Don Elliott says:

    In an ideal world one would think that this is the role of the Teaching Hospital, but that rather demands that toes institutions also provide that routine type of care so the students receive that training as well. It is a conundrum, for sure. I posit the Medical School Industry needs to step up and propose a model. Here in Wisconsin we are seeing consolidation of hospitals and family practice physician groups, and alliances of teaching hospitals with community hospitals. Maybe this is an organic solution rather than an imposed one? Or will it just produce higher prices at the community hospitals?

  5. 5
    raven says:

    I posted this earlier but here it is again from my SIL in LA.

    Shout out once again for Obamacare. It saved the family about $500 a couple weeks ago for my daughters’ annual exams which weren’t covered before and now is saving us $700 a day for my hospital stay over what our prior policy wd have paid. And that’s on top of the hundreds of dollars per month it is saving us on our premiums. I’ve heard it hasn’t worked so well for some others and then there are other people who just want to talk shit about it because they don’t like Obama. $700 a day is a lot of money. I will take all the good news I can get these days!

  6. 6
    dr. bloor says:

    Once again, I’m not getting the whole “consumers bending the cost curve” thing. The price of services is determined by contracts between insurers/government and hospitals/doctors. Joe Blow is pretty much wasting his time finding the cheapest provider, since all of the hospitals are going to bill above the allowed amount and accept whatever the insurance company assigns. This is truer than ever now that the ACA will be bringing more people into the system.

    If you’re talking about insurers bending the cost curve, well, they’ve been doing that for years now, and will continue to do so to the extent that the market will bear (i.e., until too many hospitals close).

  7. 7
    RAM says:

    Who gives a damn about care? They all wake you up in the middle of the goddamned night and demand you tell them how you feel.

    What patients really need to know is: How’s the food. The worst hospital food I ever ate was at Loyola University Medical Center in suburban Chi-town. Care was impeccable; aortic valve replacement went very well despite my severe ankylosing spondylitis. Food was so bad, I figure it cost me at least an extra day in stir before I could get out of the place.

  8. 8
    Sondra says:

    You’re summary of the article was very good: I followed the link but didn’t get more information. I used to sell Open Heart Surgical products in the NYC and New Jersey area so I have some experience with those Hospitals which are considered “high end care”.
    First of all Hospitals, like other public/private institutions, always need more money than they take in via payments and reimbursements.

    They rely heavily on donors to help them build their special units for Cardiac Care, NeoNatal Care, and Transplants: big donors want their names on the Units and give generoulsy to establish them. These are the same large teaching hospitals mentioned in the article and the large fees usually support their other units like the ERs and regular patient care.

    They attract the most talented Surgeons and their reputations are based on those high end units like their Open Heart Units. But they also attract administrators who can raise money. So the big names in Heart Surgery: Beth Israel in Newark, NYU, Roosevelt and Columbia Presbyterian in New York, and Sloane Kettering for Cancer Treatment
    all fall into those categories.

    But they are also the local area Hospitals whose Emergency Rooms are filled with the ordinary assortment of illnesses and broken bones. They provide that kind of care in addition to their specialties and I think their high level of care translates down to the mundane.

    Even so, their ERs don’t get the kind of money that their Cardiac Care units get. My job involved these ERs too since treating chest wounds was a big part of their work and since I did in-service training around the clock and in every department I can say that the knowledge displayed was very high compared to the level of training in smaller, less speialized Hospitals around the States of New Jersey and New York.

    It pretty much ends up that the more procedures a Hospital does, the better the staff is at doing those procedures. So If you want to shift the general public to less well known Hospitals, there will be problems until the staff is up and running for awhile. This is true at all levels of care and that care is also limited to the number of beds a facility can support.

  9. 9
    burnspbesq says:


    Sadly we’re not allowed to do that in this country

    Sure we are. It’s just that the political will to do it is lacking.

  10. 10
    Roger Moore says:

    @dr. bloor:

    Once again, I’m not getting the whole “consumers bending the cost curve” thing.

    You probably haven’t ever seen a unicorn, either.

  11. 11
    Roger Moore says:

    For non-emergency specialties, it might make the most sense to leave them to specialist hospitals (or functionally separate units within bigger hospitals) rather than trying to have every hospital offer them and do a half-assed job. Of course my thoughts on this are probably biased because I work at a Comprehensive Cancer Center. We treat cancer, that’s pretty much all we do*, and we do a really good job of it because we see rare, difficult cases often enough to have developed some real expertise. I assume something similar is true of other specialties.

    *There are a few exceptions where we treat other diseases that use the same treatment. For example, we have a very strong bone marrow transplant program, and we do transplants for people who need them for non-cancer illnesses like severe sickle cell.

  12. 12
    Richard Mayhew says:

    @dr. bloor: It can be the insurance companies driving patients to the cheaper hospitals. The quickest way I can think of doing that is through a bifurcated benefit design. The big regional medical centers are in the top tier/lowest member responsibility for the exceptional services that they offer (transplants, high end cancer treatments, trauma etc) but are in a lower tier (higher deductible etc) for the common stuff (hernias, bypasses, disease management etc) while the community hospitals are top-tier (low member responsibility) for everything that they offer.

  13. 13
    Richard Mayhew says:

    @Roger Moore: And the question is how do we keep the Comprehensive Cancer Center in business to treat the really rare/wierd/aggressive cases if we divert the simpler cases to cheaper locations.

  14. 14
    Barbara says:

    We directly finance the training of physicians that we think we need to meet our needs? And maybe, just maybe, some things don’t get funded simply on the principle that what can be done ought to be done. My child was in a NICU so I am very aware that high end, expensive care, saves lives. But there are still a lot of issues that get raised over the use and price of these services. Even in the NICU, which is standard in every developed nation, we do many things that other nations simply won’t because they don’t think it is appropriate — from the perspective of quality of life, degree of suffering, and the cost benefit of a likely successful outcome. This is hard for us to accept, but when it means some people aren’t getting any care at all, that’s a high price to pay for outliers.

    There was a big fight a few years back where our local, very prestigious Children’s Hospital raised holy hell over being expected to take lower rates from a local Blue plan and threatening to terminate its contract if they didn’t get higher rates. There were newspaper ads, editorials, etc., with a lot of people accepting on faith that only Children’s could do this or that high end service. I talked to my pediatrician and she said that it just wasn’t true, that except for some really ultra-specialized services, there were other facilities and doctors (many of whom also participate in training programs) that could provide the same services within comparable distance from my house, at least, and that if you were unfortunate enough to need those kinds of services, you would probably be willing to travel farther to get them, as many people were traveling to Children’s from other metropolitan areas. I asked because, as I said above, I had a premature child who was fortunately healthy but had to go for some special follow up and the hospital where she was born was always trying to get me to go to Children’s, which was not convenient.

  15. 15
    pseudonymous in nc says:

    Patients use the existence of very high end care as a misleading proxy for quality.

    Yep. And they all want to think that they’re Sloan-Kettering-worthy, when the point of specialist hospitals is that they should be handling the edge cases and doing work that relatively quickly gets adopted into standard practice elsewhere.

    The quality criteria are ass-backwards, to use the American parlance: what you want to be sure of is a) the fancy schmancy hospitals aren’t inflating their costs; b) the bog-standard hospitals aren’t fucking up.

  16. 16
    pseudonymous in nc says:

    Thanks to say, one of the weird issues in the US is the question of differentials. In most countries with proper health systems, it’s important to have top-tier centres of excellence but it’s also important to get that expertise distributed out through teaching — not necessarily through some kind of central planning, but by the basic belief that you want the innovations made widely available across the system.

    Sloan-Kettering and MD Anderson do good work, but they also have to present themselves to the world as way better than the competition, and while I’m sure that a little bit of friendly rivalry isn’t bad, I’m not convinced that for healthcare in the US — where the biggest gains are going to be from improving die-in-a-ditch care or wait-12-hours-outside-a-stadium care for millions of people — that emphasis upon differentials at the top is worthwhile.

  17. 17
    Richard Mayhew says:

    @pseudonymous in nc: But then it would mean that someone is not a special snowflake and those people are TAKING SOMETHING FROM ME!

  18. 18
    Richard Mayhew says:

    @Barbara: Yep, your policy solution — debundle training and high end care from regular care payment would be the a 1st best solution, and one I support.

    We won’t get that, so the kludges, elegant and otherwise, are the 2nd or 3rd best solutions.

  19. 19
    Doug says:

    We’ve been asked to participate in a research study on empathy and understanding …

    “We call it Voight-Kampff for short.”

  20. 20
    Barbara says:

    Richard, the amount of cost shifting in American health care has to stop or else nothing will ever change. It’s only when hospitals are actually at risk of going out of business that we will start entertaining solutions that are not kludge (well, at least in blue states). Besides, as most economists will tell you, the justifications made by these hospitals for higher prices based on doing high end stuff, or being there 24 hours a day, or providing uncompensated care are mostly made without rigorous validation — and are mostly a nicer way of justifying what is really just an exercise of market power.

  21. 21
    mclaren says:

    A major challenge going forward is shifting people down the cost curve of care while still maintaining effective care. (..) I’m not sure how to do that.

    And Richard Mayhew bills himself as a “health care expert”?

    On what planet?

    Listen up, Mayhew — here’s how you shift people down the cost curve of health care in America while maintaining effective care.

    STEP 1: Stop doctors from accepting bribes from giant pharmaceutical companies to prescribe insanely overpriced medication instead of cheap generic drugs.

    California has joined a whistleblower lawsuit that claims Bristol-Myers Squibb Co. bribed doctors to prescribe its drugs, costing insurers perhaps millions of dollars in the largest alleged health care fraud case ever handled by the state, Insurance Commissioner Dave Jones announced Friday.

    The suit claims company salespeople plied physicians with speaking fees, expensive meals, gifts and trips to induce or reward them for prescribing large amounts of its drugs, which were billed to private insurers.

    For example, the company invited doctors to attend Los Angeles Lakers games at Staples Center and spent thousands of dollars on luxury suites, the suit claimed.

    Source: “Drug Giant Accused of Bribing Doctors to Prescribe,” Huffington Post, 18 March 2011.

    STEP 2: Disband the AMA and make it illegal for cartels like the AMA to limit the number of students accepted each year in American medical schools, so that American doctors make $240,000 per year on average while French doctors make $60,000 per year — because America now has fewer medical schools today than it did in 1965.

    Greg Mankiw features the chart above on physicians’ salaries in the U.S. vs. various European countries and Canada, showing that MDs in the U.S. make about $200,000, which is between 2 and 5 times as much as doctors make in other countries. How do we explain the significantly higher physician salaries in the U.S.?

    One explanation is the restriction on the number of medical schools, and the subsequent restriction on the number of medical students, and ultimately the number of physicians. Consider the difference between law schools and medical schools.

    In 1963, there were only 135 law schools in the U.S. (data here), and now there are 200, which is almost a 50% increase over the last 45 years in the number of U.S. law schools. Unfortunately, we’ve witnessed exactly the opposite trend in the number of medical schools. There are 130 medical schools in the U.S. (data here), which is 22% fewer than the number of medical schools 100 years ago (166 medical schools, source), even though the U.S. population has increased by 300%. Consider also that the number of medical students in the U.S. has remained constant at 67,000 for at least the period between 1994 and 2005, according to this report, and perhaps much longer.

    Source: “Why are MD salaries so high? Inside the medical cartel,” Carpe Diem blog, 24 June 2009.

    STEP 3: Get rid of the ignorant incompetent doctors. 1/3 of deaths in hospitals in America now are due to “doctor’s mistakes ” (gross incompetence) and doctors in America persist in prescribing treatments that are known not to work.

    Medical errors leading to patient death are much higher than previously thought, and may be as high as 400,000 deaths a year, according to a new study in the Journal of Patient Safety.

    The latest numbers are dramatically higher than those in the Institute of Medicine’s 1999 report, To Err is Human: Building A Safer Health System, which estimated that up to 98,000 people a year die because of hospital mistakes. The data for that report is based on medical record reviews from 1984 and doesn’t take into account studies published since 2008.

    The new study reveals that each year preventable adverse events (PAEs) lead to the death of 210,000-400,000 patients who seek care at a hospital. Those figures would make medical errors the third leading cause of death behind heart disease and cancer, according to Centers for Disease Control and Prevention statistics.

    The latest findings are based on research conducted by John T. James, Ph.D., who oversees the advocacy group Patient Safety America, an organization he founded in honor of his 19-year-old son who died in 2002 as the result of what he describes as negligent hospital care.

    Source: “Hospital medical errors now the third leading cause of death in the U.S.,” 20 September 2013.

    In the early throes of a heart attack, caused by an abruptly clotted artery, the stunned heart often beats quickly and forcefully. For decades doctors have administered “beta-blockers” as a remedy, to reduce consumption of limited oxygen supplies by calming and slowing the straining heart. Giving these drugs in the early stages of a heart attack represents elegant medical ideology.

    But it doesn’t work.

    Studies show that the early administration of beta-blockers to heart attack victims does not save lives, and occasionally causes dangerous heart failure. While two studies support the use of beta-blockers after heart attack, there are 26 studies that found no survival benefit to administering beta-blockers early on. Moreover, in 2005, the largest, best study of the drugs showed that beta-blockers in the vulnerable, early hours of heart attacks did not save lives, but did cause a definite increase in heart failure.

    Remarkably, the medical community has continued to strongly recommend immediate beta-blocker treatment. Why? Because according to the theory of the straining heart, the treatment makes sense. It should work, even though it doesn’t. Ideology trumps evidence.

    The practice of medicine contains countless examples of elegant medical theories that belie the best available evidence.

    Recent press reports detailing the dangers of cough syrup for children have noted that cough syrup doesn’t work. True: No cough remedies have ever been proven better than a placebo, either for adults or children. Yet their use is common.

    Patients with ear infections are more likely to be harmed by antibiotics than helped. While the pills may cause a small decrease in symptoms (for which ear drops work better), the infections typically recede within days regardless of treatment. The same is true for bronchitis, sinusitis, and sore throats. Unnecessary antibiotics are still given to more than one in seven Americans each year for these conditions alone, at a cost of more than $2 billion and tens of thousands of serious adverse medication effects requiring treatment.

    Back surgeries to relieve pain are, in the majority of cases, no better than nonsurgical treatment. Yet doctors perform 600,000 of these surgeries each year, at a cost of over $20 billion.

    More than a half million Americans per year undergo arthroscopic surgery to correct osteoarthritis of the knee, at a cost of $3 billion. Despite this, studies show the surgery to be no better than sham knee surgery, in which surgeons “pretend” to do surgery while the patient is under light anesthesia. It is also no better than much cheaper, and much less invasive, physical therapy.

    Treatment based on ideology is alluring. Surgeries to repair the knee should work. A syrup to reduce cough should help. Calming the straining heart should save lives. But the uncomfortable truth is that many expensive, invasive interventions are of little or no benefit and cause potentially uncomfortable, costly, and dangerous side effects and complications.

    Source: “Believing in treatments that don’t work,” The New York TImes wellness blog, 2 April 2009.

    STEP 4: Prosecute medical device makers, doctors, hospitals, imaging and blood work clinics for antitrust, collusion, corruption, price-gouging and conspiracy to defraud customers via restraint of trade so that $40 disposable plastic surgical instruments are no longer billed out at $1200 each and aspirin are no longer billed at $5 each.

    …[E]ach sector of the health industry points fingers at the other for driving up prices, and all are raking in money.

    Insurers blame hospitals and doctors, doctors blame insurers, and hospitals blame doctors and medical devicemakers in what academics call an inscrutable medical-industrial complex that rivals anything the defense industry ever invented. All these groups are combining into what many experts describe as cartels.

    Many industry insiders are afraid to speak on the record for fear of antagonizing the medical groups they rely on for their survival. Contracting practices are draped in secrecy. Prices are almost impossible to obtain because of “confidentiality agreements” among hospitals, physician groups, insurers and devicemakers who do not want their markups exposed to competition or public scrutiny.

    Christina Bernstein, a medical-device engineer and independent sales representative based in San Francisco, sells disposable surgical tools made mostly out of plastic that she estimates are manufactured for about $40 each. These are marked up and sold to hospitals for as much as $350, she said, for a single use in a surgery on a patient.

    “But if you were to get a detailed bill of what the hospital was charging the insurance company for the insured patient, those things get marked up to something like $1,200,” Bernstein said. “It’s ridiculous. There’s no open competition.”

    Source: “Experts warn of medical industry cartels’ power,” The San Francisco Chronicle, 21 February 2010.

    What the hell kind of so-called “expert” is Richard Mayhew if he can’t figure out that stopping doctors from taking bribes and preventing the AMA from shutting down medical schools to keep physicians’ salaries sky-high and ending the corrupt collusive medical cartels that keep health care prices in America “ludicrous” (according to Ezra Klein’s article “21 graphs that show why American medical costs are ludicrous”) is the simple and obvious and only workable way to bend the cost curve of American health care.

    Stop the bribery.

    Stop the cartels.

    Stop the non-disclosure agreements.

    Stop the sweetheart contracts.

    Stop the price-gouging.

    Put doctors and hospital administrators and medical device salesmen and pharmaceutical company executives in jail for criminal fraud, and keep sending them to prison until they stop their criminal fraud.

    That’s how you bend the cost curve of American health care while maintaining effective health care.

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