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Delivering Health
Hospitals: More Expensive, Same Middling Quality

Pay more, get the same—or less. A new study in Health Affairs finds that health care, unlike practically every other sector of our economy, is the one area where price and quality are totally uncorrelated. According to the WSJ, the study authors paired newly released data on hospital prices with quality metrics. The result throws the dysfunction of our system into sharp relief:

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 good news is that we have started some experiments to improve this situation. The bad news is that these experiments haven’t been as successful as we need them to be. The Affordable Care Act, for example, set up what are know as Accountable Care Organizations, or ACOs. ACOs are provider groups that make a deal with the government: when they save money on Medicare patients relative to certain cost targets, they get to keep half the savings for themselves, while the government keeps the other half. When we last covered ACOs on The Feed, we mentioned that the data for their success was mixed, with only nine out of 32 ACOs in the Obamacare pilot program having saved a significant amount of money. New results on a wider sample, however, are slightly better: Nearly half of 114 new ACOs under Obamacare have saved Medicare some money.

Yet even these new results are not all that encouraging. Only 29 of the 114 saved enough to spilt proceeds with the government. We need new experiments of this kind yielding better outcomes, and we need them quickly.

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  • Boritz

    …one area where price and quality are totally uncorrelated…
    Then it would be smart to shop around and pick the absolute lowest price you can find. A bidding process is not usually this straight-forward. Take advantage.

    • Andrew Allison

      In order to do that, the ranking of hospitals on the cost scale would need to be published. Good luck with that! But determining whether the hospital is part of an ACO might not be a bad criterion. As WRM has repeatedly pointed out, transparency is the only way we’re going to separate the bulls and bears from the hogs.

      • Bruce

        Not to make excuses, the system is broken beyond repair. But the “expensive” hospitals probably get the sicker, more complicated patients. In general, we need to start all over with the way healthcare is administered and paid for. As Andrew says, “Good luck with that.”

  • Jacksonian_Libertarian

    Without the “Feedback of Competition” providing an existential threat, the healthcare system will never provide the continuous forced improvements in Quality, Service, and Price that free markets give us. The ACO’s are weak tea that offer 1/2 a Carrot and that only for price reductions which means, Quality, and Service, are going to be sacrificed to get lower prices, and no Stick at all. Free Markets on the other hand offer 100% of the Carrot, and value Quality, Service, and Price as their customers do, and 100% of the Stick of “Bankruptcy” and everyone losing their jobs.

    For an example of how the “Feedback of Competition” would work in the healthcare system, you need look no further than Lasik eye surgery which isn’t covered by insurance. This medical field has developed in just a couple of decades from Radial Keratotomy surgery to an outpatient precision laser surgery with an Advertised price of $299 per eye, or about the cost of a pair of high end designer prescription glasses. That’s the kind of healthcare system we deserve, not this socialist quality, service, and price.

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