The Untold Story

Submitted by on Friday, January 9, 2015 - 08:35

Newtown, CT – January 9, 2015

Sometimes it's the side of the story that's not told that ends up more interesting – In the new issue of Health Affairs there's a paper with a headline-grabbing title of: Medicare's Hospital Compare Quality Reports Appear To Have Slowed Price Increases For Two Major Procedures. A careful review of the paper yields two interesting findings, but only one is explored. The other, which is potentially very troubling, is quite simply ignored. Let's review the presented facts. First, the authors compared the difference in price increases for two cardiac procedures over time, marking 2007 as an inflection point at which the prices in markets where there was no public information increased at a slower rate than markets in which public information was already available prior to the launch of Hospital Compare. The conclusion drawn is reflected in the headline-grabbing title, namely that the release of comparative quality data on these cardiac procedures created a dampening effect on prices. They still went up, but not as much as in the control group. The concerning and ignored finding is that in the markets in which comparative quality information existed prior to the release of Hospital Compare, prices went up and exceeded the increase of the other states. In other words, the price lines for both groups crossed after 2007, with the states in which price had been available going up, catching up with other states and then exceeding them. The title could very well have been: The Dampening Effect On Prices Of Publicly Available Quality Information Is Short Lived.

What this means to you – It's important to pull back and observe the forest for fear of getting lost in the trees. The post 2007 period has been one marked by rapid price increases and hospital consolidations. Not simply consolidations of hospitals through acquisitions of their local competition, but also acquisition of physician practices. To an extent, one can and should anticipate this as a normal reaction of suppliers when faced with a potential threat to price, because one way of protecting wallet share for a threatened supplier is simply to buy up the competition and the source of referrals. What very likely happened in the more mature markets – metropolitan areas – in which public transparency of quality had been in effect for a while, is the realization that (a) consumers don't really vote with their feet when only quality information is conveyed, and (b) fighting back by consolidating is a lot easier than actually improving performance. Given the recent reported trends in hospital pricing, we can safely assume that the trend divergence observed in this new Health Affairs paper will disappear. The real and important lesson from this paper is that quality information by itself will not have a lasting effect on prices. Only the combination of value-based payments and value-based insurance design can create a real market.