The Price-Quality Mismatch: Are Negotiated Prices for Total Joint Arthroplasty Associated With Hospital Quality in a Large California Health System?
Authors: Zhuang Thompson , Shapiro Lauren M. , Baker Laurence C. , Kamal Robin N. 
Published: February 2023

Background

Price variations in healthcare can be caused by quality or factors other than quality such as market share, negotiating power with insurers, or hospital ownership model. Efforts to improve care value (defined as the ratio between health outcomes and price) by making healthcare prices readily accessible to patients are driven by the assumption this can help patients more easily identify high-quality, low-price clinicians and health systems, thus reducing price variations. However, if price variations are driven by factors other than quality, then strategies that involve payments for higher-quality care are unlikely to reduce price variation and improve value. It is unknown whether prices for total joint arthroplasty (TJA) are correlated with the quality of care or whether factors other than quality are responsible for price variation.

Questions/purposes

(1) How do prices insurers negotiate for TJA paid to a single, large health system vary across payer types? (2) Are the mean prices insurers negotiate for TJA associated with hospital quality?

Methods

We analyzed publicly available data from 22 hospitals in a single, large regional health system, four of which were excluded owing to incomplete quality information. We chose to use data from this single health system to minimize the confounding effects of between-hospital reputation or branding and geographic differences in the cost of providing care. This health system consists of large and small hospitals serving urban and rural populations, providing care for more than 3 million individuals. For each hospital, negotiated prices for TJA were classified into five payer types: commercial in-network, commercial out-of-network, Medicare Advantage (plans to which private insurers contract to provide Medicare benefits), Medicaid, and discounted cash pay. Traditional Medicare plans were not included because the prices are set statutorily, not negotiated. We obtained hospital quality measures from the Centers for Medicare and Medicaid Services. Centers for Medicare and Medicaid Services quality measures included TJA-specific complication and readmission rates in addition to hospital-wide patient survey star rating (measure of patient care experience) and total performance scores (aggregate measure of clinical outcomes, safety, patient experience, process of care, and efficiency). We evaluated the association between the mean negotiated hospital prices and Centers for Medicare and Medicaid Services quality measures using Pearson correlation coefficients and Spearman rho across all payer types. Statistical significance was defined as p < 0.0025.

Results

The mean ± SD overall negotiated price for TJA was USD 54,500 ± 23,200. In the descriptive analysis, the lowest negotiated prices were associated with Medicare Advantage (USD 20,400 ± 1800) and Medicaid (USD 20,300 ± 8600) insurance plans, and the highest prices were associated with out-of-network care covered by commercial insurance plans (USD 78,800 ± 9200). There was no correlation between the mean negotiated price and TJA complication rate (discounted cash price: r = 0.27, p = 0.29; commercial out-of-network: r = 0.28, p = 0.26; commercial in-network: r = -0.07, p = 0.79; Medicare Advantage: r = 0.11, p = 0.65; Medicaid: r = 0.03, p = 0.92), readmission rate (discounted cash price: r = 0.19, p = 0.46; commercial out-of-network: r = 0.24, p = 0.33; commercial in-network: r = -0.13, p = 0.61; Medicare Advantage: r = -0.06, p = 0.81; Medicaid: r = 0.09, p = 0.74), patient survey star rating (discounted cash price: r = -0.55, p = 0.02; commercial out-of-network: r = -0.53, p = 0.02; commercial in-network: r = -0.37, p = 0.13; Medicare Advantage: r = -0.08, p = 0.75; Medicaid: r = -0.02, p = 0.95), or total hospital performance score (discounted cash price: r = -0.35, p = 0.15; commercial out-of-network: r = -0.55, p = 0.02; commercial in-network: r = -0.53, p = 0.02; Medicare Advantage: r = -0.28, p = 0.25; Medicaid: r = 0.11, p = 0.69) for any of the payer types evaluated.

Conclusion

There is substantial price variation for TJA that is not accounted for by the quality of care, suggesting that a mismatch between price and quality exists. Efforts to improve care value in TJA are needed to directly link prices with the quality of care delivered, such as through matched quality and price reporting mechanisms. Future studies might investigate whether making price and quality data accessible to patients, such as through value dashboards that report easy-to-interpret quality data alongside price information, moves patients toward higher-value care decisions.

Clinical Relevance

Efforts to better match the quality of care with negotiated prices such as matched quality and price reporting mechanisms, which have been shown to increase the likelihood of choosing higher-value care in TJA, could improve the value of care.