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High-quality/low-cost hospital performance is linked to organizational characteristics and market forces

A new study indicates that there is substantial variation in hospital quality and cost performance. Researchers H. Joanna Jiang, Ph.D., and Bernard Friedman, Ph.D., of the Agency for Healthcare Research and Quality, and James W. Begun, Ph.D., of the University of Minnesota, found that high-performing hospitals average 50 to 60 percent lower risk-adjusted mortality rates and costs than low-performing hospitals. Additionally, certain organizational and market characteristics are significantly associated with better hospital performance. For example, hospitals that are investor-owned or part of a hospital system are more likely to have high performance in both quality and cost. Hospitals in a highly competitive market, or in a market with a large number of HMOs, are more likely to achieve better quality and lower cost.

The researchers analyzed data from the Healthcare Cost and Utilization Project State Inpatient Databases for 10 States in 1997 and 2001. After controlling for patient risk factors and hospital share of uninsured and Medicaid patients, they explored organizational and market characteristics associated with a hospital's likelihood of being in the lowest quartiles for both mortality and cost. They also examined the interaction of hospital and market characteristics. The differences between nonprofit and for-profit hospitals diminished in markets with high HMO penetration. The competitive pressure generated over time by HMOs' selective contracting may have motivated nonprofit hospitals to achieve higher performance in competing with their for-profit counterparts, suggest the researchers. They conclude that the presence of managed care organizations in local markets does not necessarily diminish care quality.

See "Factors associated with high-quality/low-cost hospital performance," by Drs. Jiang, Friedman, and Begun, in the Spring 2006 Journal of Health Care Finance 32(3), pp. 39-52. Reprints (AHRQ Publication No. 06-R054) are available from the AHRQ Publications Clearinghouse.

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