Happy Accident Lowers Healthcare Costs

The Affordable Care Act (ACA) increased emphasis on quality reporting for doctors and hospitals in an effort to improve care and, hopefully, improve health outcomes for patients. Whether or not this will be accomplished is yet to be seen. However, Medicare’s Hospital Compare tool, implemented prior to the ACA in 2005 by the Centers for Medicare and Medicaid (CMS), has had another unanticipated effect: lowering costs.

A new study published in Health Affairs by public health and health economics researchers have found that though Hospital Compare has not made much impact on quality measures or patients’ choice of hospitals, the program has exerted downward pressure on hospital prices in states that did not have quality report cards before.

The program didn’t have any effect in reducing 30-day mortality rates for heart attack, but it did blunt the increase in costs for common cardiac procedures compared to control states. The cost of coronary artery bypass grafts (CABG) had risen by 35.4% between 2007 and 2010 in control states, but in states that went from no quality reporting to having Hospital Compare, that increase was only 12.1%.

Health care is unlike any other commoditized good in the American economy because of the simple fact that the consumers (i.e. patients) don’t bear the full cost of their care unless they are uninsured, making a third party (insurance companies) responsible for ensuring competition among providers (hospitals). Hospital Compare seems to be giving insurance companies leverage by providing information that can be used to negotiate prices, potentially lowering costs.

Patients themselves don’t use the information (a 2008 survey showed only 6% of Americans had even heard about it) perhaps because patients don’t actually participate directly in cost negotiations. These data emphasize that directing increased transparency efforts toward patients may not be as effective as anticipated in an insurance-based market anyway.

Quality reporting may finally apply some much needed pressure on hospitals to lower costs, transforming the American health economy into something more responsive to typical market pressures like competition. Whether or not insurance companies plan to pass the savings along to patients is debatable.

commentary by Farah Kudrath 

Abstract

Previous research has found that Hospital Compare, Medicare’s public reporting initiative, has had little impact on patient outcomes. However, little is known about the initiative’s impact on hospital prices, which may be significant because private insurers are generally well positioned to respond to quality information when negotiating prices with hospitals. We estimated difference-in-differences models of the effects of Hospital Compare quality reporting on transaction prices for two major cardiac procedures, coronary artery bypass graft (CABG) and percutaneous coronary intervention (PCI). States that had mandated their own public reporting systems before the implementation of Hospital Compare formed the control group. We found that prices for these procedures continued to increase overall after the initiation of Hospital Compare quality scores, but the rate of increase was significantly lower in states with no quality reporting metrics of their own before Hospital Compare, when compared to the control states (annual rates of increase of 4.4 percent versus 8.7 percent for PCI, and 3.9 percent versus

10.6 percent for CABG, adjusted for overall inflation). This finding implies that Hospital Compare provided leverage to purchasers in moderating price increases, while adding competitive pressures on hospitals. Providing accurate quality information on both hospitals and health plans could benefit consumers.

PMID: 25561646

Dor, A. et al. Health Affairs. 2015; 34 (1): 71-77.