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What You’re Really Paying For

What You’re Really Paying For

Posted: June 14, 2016

3 new studies shed light on health care costs

You get what you pay for, or so the old adage goes. Do you want a better car? It'll cost you. Nicer restaurant, bigger bill. Even basic daily items like toilet paper require you to spend more if you want higher quality. But some recent studies are suggesting that when it comes to health care the relationship between cost and quality is a bit more complex.

1. You're paying for reputation, not outcomes.

A study published in the February 2014 issue of Health Affairs compared data from high- and low-priced hospitals across the United States. The authors analyzed the quality of these hospitals by two standards - reputation-based and outcome-based. Outcome-based quality standards use measurable categories that indicate a quality outcome for the patient after they have received care. They include factors like speed of recovery, rate of readmission to a hospital, infection rates and medical errors. 

The study found that while high-priced hospitals tend to perform significantly better on reputation-based quality rankings, they didn't do as well when measured through outcome-based standards. In fact, lower-priced hospitals even outperformed their higher-priced counterparts in areas like readmission rates and patient safety.

The Bottom Line

High-cost hospitals that have a reputation for quality care might not necessarily live up to that reputation. Working to structure your employee benefits toward lower cost but high quality health systems could impact your bottom line and also keep your employees healthier.

2. You're paying for hospital stays, not services.

Another recent study, published by the National Institute for Health Care Reform, took a look at the cost differences between hospitals for uncomplicated knee and hip replacements. They found that, despite the procedures being largely standardized, there were significant cost differences between hospitals. Costs for the same procedure between hospitals measured ranged from as low as $17,500 to as high as $37,000.

The reason for the difference? The authors found that 80% of the total variation between these costs came from the initial inpatient stay, not from other cost drivers like the physician's fees or physical therapy. 

The Bottom Line

The main takeaway from this study is that inpatient hospital visits are the primary cost driver for a number of standard procedures. You can help manage these costs by looking for an insurance company that actively reviews inpatient stays for appropriateness. These programs also impact hospital readmission rates which can further reduce costs.

3. You're paying for ambiguity.

If you still need convincing that cost and quality aren't always directly related, then consider a study from the Annals of Internal Medicine. The authors analyzed 61 different studies that looked at the relationship between health care cost and quality. Unfortunately, the results suggest that we may have a long way to go in understanding this aspect of the health care system.

The authors found that 34% of the studies reported a positive relationship between cost and quality while 30% of the studies reported a negative relationship between cost and quality. The remaining 36% found no significant relationship between the two. The takeaway: higher cost led to better quality at about the same rate that lower cost led to higher quality.

The Bottom Line

Do not assume that high cost means better quality. Work with your insurance company and your employees to find the best health care at the best price.


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