Overpriced? Are Hospital Prices Associated with the Quality of Care?

Abstract

In most consumer markets, higher prices generally imply increased quality. For example, in the automobile, restaurant, hospitality, and airline industries, higher pricing generally conveys a signal of complexity and superiority of a service or product. However, in the healthcare industry, there is room to challenge the price-quality connection as both health prices and health quality can be difficult to interpret. In the best of circumstances, health care costs, prices, and quality can often be difficult to isolate and measure. Recent efforts by the Trump Administration and the Center for Medicare and Medicaid Services (CMS) have required the pricing of hospital services to be more transparent. Specifically, hospital chargemaster (retail) prices must now be available to the public. However, many continue to question if the pricing of health care services reflects the quality of service delivery. This research focuses on investigating the prices hospitals charge for their services in relation to the costs incurred and the association with the quality of care provided. By analyzing data from a nationwide sample of U.S. hospitals, this study considers the relationship between hospital pricing (as measured by the charge-to-cost ratio) and hospital quality performance as measured by the Value Based Purchasing Total Performance Score (TPS) and its associated sub-domains. Results of the study indicate that hospital prices, as measured by our primary independent variable of interest, the charge-to-cost ratio, are significantly and negatively associated with Total Performance Score, Patient Experience, and the Efficiency and Cost Reduction domains. A marginal statistically significant positive association is shown in the Clinical Care domain. The findings indicate that unlike most other industries, in medicine, higher pricing compared to cost does not necessarily associate with higher quality and, in fact, might indicate the opposite. The results of this study suggest that purchasers of healthcare, at all levels, have justification in challenging the pricing of healthcare services considering the quality scores available in the public domain.