Exploring the relationship between inpatient hospital costs and quality of care

This research explores the potential benefit of improving the clinical quality and reducing the cost of inpatient care using administrative data to inform or restrict provider choice. Cost and quality measures derived from this source are already available to purchasers, payers, and consumers in support of insurance products designed to provide financial incentives for consumers to seek high-quality, low-cost care. It will be important to further refine the clinical and cost data to take into account measurable differences in the severity of illness of patients, and to acknowledge that some of the differences in cost or quality variation among hospitals may not be captured despite such refinements. Medicare cost report data is merged with Uniform Hospital Discharge Abstracts to identify the additional direct cost of patients experiencing 1 of 6 poor clinical outcomes, or admissions for ambulatory care sensitive conditions, or selected surgical procedures at low volume hospitals. Variability in case mix-adjusted cost per case among community and teaching hospital groups is also quantified; measurable quality differences between low cost and other hospitals in each group is described. Our results suggest that, despite implementation challenges, purchaser and payer initiatives that encourage consumers to seek lower cost inpatient care without sacrificing clinical quality are worth pursuing.