Why are some hospitals more expensive than others?

Filed Under: Costs, Providers, Regulators

CHCPaulLevyPriceDisparities

SUMMARY: Some hospitals are more expensive than others. Sometimes they charge more, sometimes they get paid more (by both insurance companies and the government, as well as patients). The higher-priced provider is not always better; in fact, the higher-priced provider can have worse quality outcomes. So what’s the cause?

 

 


Paul Levy, a former CEO of Beth Israel Deaconess Hospital in Boston, blogs about health-care policy at Not Running a Hospital. His recent piece on The HealthCare Blog, where I first saw it, points to a paradox on this subject.

Massachusetts has a big price-transparency effort going, with a great deal of commissions, reports, new regulations and so on. Paul points out that one of the recent reports talks about disparities in disapproving terms — but hides the identities of the highest-priced and lowest-priced, thereby continuing the lack of transparency.

“People in health care don’t like it when numbers emerge that are uncomfortable.  Take these, issued today by the Massachusetts Health Policy Commission in its latest reporton the drivers of the high cost of care in our state,” he writes.

“Variation, particularly when not correlated to quality of outcome, is particularly troublesome for some incumbents.  Academic medical centers often have their answer, but as the HPC explains, it doesn’t hold water:

“One oft-cited theory for the cause of this variation is that certain types of hospitals, such as those that teach physician residents and fellows, must incur additional expenses to support their mission. However, the difference in median expenses per discharge between teaching hospitals and all hospitals ($1,030) was less than the difference between individual teaching hospitals ($3,107 between the 75th percentile and 25th percentile teaching hospitals). Moreover, there were a number of teaching hospitals that incurred fewer expenses per discharge than the statewide all-hospital median of approximately $9,000 per discharge….

“This report is a good step forward.  Now, if the HPC were to just put names under each column, instead of leaving them unmarked, it could take a major step forward in two of its own policy recommendations:

“-Fostering a value-based market in which payers and providers openly compete to provide services and in which consumers and employers have the appropriate information and incentives to make high-value choices for their care and coverage options; and

“-Enhancing transparency and data availability necessary for providers, payers, purchasers, and policymakers to successfully implement reforms and evaluate performance over time.”

It’s an article of faith in Massachusetts that the Partners hospitals — Massachusetts General and Brigham and Women’s — are the most expensive. Levy has said before that their market power allows them to collect big payments.

Without naming names, he wrote in an earlier blog post: “The current pricing regime is characterized by secret negotiations between the dominant insurance company and the dominant provider group, which has led to persistent and pervasive over-pricing of that system’s services. This argument is not solely about the cost of care at, and prices paid to, one academic medical center: It is about the price paid for care in the entire system (physicians and hospitals) of which that AMC is but a part. There is a need for independent oversight over parties that clearly are not interested in solving the problem.”