How Costly Is Hospital Quality? A Revealed-Preference Approach

One of the most important and vexing issues in health care concerns the cost to improve quality. Unfortunately, quality is difficult to measure and potentially confounded with productivity. Rather than relying on clinical or process measures, we infer quality at hospitals in greater Los Angeles from the revealed preference of pneumonia patients. We then decompose the joint contribution of quality and unobserved productivity to hospital costs, relying on heterogeneous tastes among patients for plausibly exogenous quality variation. We find that more productive hospitals provide higher quality, demonstrating that the cost of quality improvement is substantially understated by methods that do not take into account productivity differences. After accounting for these differences, we find that a quality improvement from the 25th percentile to the 75th percentile would increase costs at the average hospital by nearly fifty percent. Improvements in traditional metrics of hospital quality such as risk-adjusted mortality are more modest, indicating that other factors such as amenities are an important driver of both hospital costs and patient choices.

How Costly Is Hospital Quality? A Revealed-Preference Approach

Abstract The cost of quality improvement is an important issue in health care. Unfortunately, quality is di¢ cult to measure and potentially confounded with productivity. We infer quality at hospitals in greater Los Angeles from the revealed preference of patients. The resulting measure -which we call "revealed quality" -embodies all aspects of the hospital experience which patients observe and value, potentially including patient amenities as well as clinical quality. We …nd that hospitals are highly di¤erentiated in revealed quality, and that this quality measure is only modestly correlated with a standard measure of clinical quality (risk-adjusted mortality rates). We then determine the cost of revealed quality, appealing to heterogeneity in patient tastes and locations for exogenous quality variation. An inter-quartile increase in quality would raise costs by 48.2% at an otherwise average hospital. More productive hospitals supply higher revealed quality; when this relationship is ignored, the cost of quality is substantially understated. We also …nd that the cost of an inter-quartile increase in clinical quality is only 12.3%. Altogether, these …ndings suggest that non-clinical aspects of the hospital experience may be important determinants of both hospital demand and costs

How Costly Is Hospital Quality? A Revealed-Preference Approach

Abstract We analyze the cost of quality improvement in hospitals, dealing with two challenges. Hospital quality is multidimensional and hard to measure, while unobserved productivity may in ‡uence quality supply. We infer the quality of hospitals in Los Angeles from patient choices. We then incorporate 'revealed quality' into a cost function, instrumenting with hospital demand. We …nd that revealed quality di¤erentiates hospitals, but is not strongly correlated with clinical quality. Revealed quality is quite costly, and tends to increase with hospital productivity. Thus, non-clinical aspects of the hospital experience (perhaps including patient amenities) play important roles in hospital demand, competition, and costs. We wish to than

Medical innovation and social externality

Healthcare expenditure in the United States has grown and will continue to increase. The increasing healthcare expenditure is to reduce real income as well as to diminish total utility and increase financial stresses. This study argues that the most critical factor that increases healthcare expenditures during last 50 years has been the advent, adoption and diffusion of new medical technologies that include new drugs, equipment and healthcare delivery systems. This study introduces various examples how medical innovations influence to increase healthcare expenditures. In company with the advanced medical technology, this study suggests a free market in medical technology that means less regulation and less subsidization to healthcare market participants, such as healthcare providers, insurers, and healthcare consumers to reduce healthcare expenditures