TY  - JOUR
AU  - Romley,John A.
AU  - Goldman,Dana
TI  - How Costly Is Hospital Quality? A Revealed-Preference Approach
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13730
PY  - 2008
Y2  - January 2008
UR  - http://www.nber.org/papers/w13730
L1  - http://www.nber.org/papers/w13730.pdf
N1  - Author contact info:
John Romley
RAND Corporation
1776 Main Street
P.O. Box 2138
Santa Monica, CA 90407-2138
E-Mail: John_Romley@rand.org

Dana Goldman
RAND Corporation
1776 Main  Street
P.O. Box 2138
Santa Monica, CA 90407-2138
Tel: 310/393-0411
Fax: 310/451-7007
E-Mail: dgoldman@rand.org
AB  - 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.
ER  -