Estimating Returns to Medical Care

Project Outcomes Statement

The US healthcare system accounts for close to 20% of GDP, yet it is often estimated that 30% of this care is likely wasteful. This points to a critical need to identify the types of care that are especially wasteful – that is, care for which the cost is substantially greater than its value. The research supported by this grant has developed novel ways to evaluate value and to identify waste in health care, with the following findings:

First, we identified a “natural experiment” that allowed us to compare the health outcomes for very similar patients who happened to be treated in different hospitals. We showed that the ambulance assigned to emergency cases is effectively random within a neighborhood, and that ambulance assignment affects hospital choice. Combining these two elements allowed us to compare very similar patients and to show that hospitals that provide higher-intensity care at the time of the emergency achieve better health outcomes, and that those that rely more on post-acute care achieve lower-quality outcomes. In addition, we found that existing quality measures, especially risk-adjusted mortality, can meaningfully identify high- and low-quality hospitals, which is crucial to moving toward a system that rewards quality.

A second approach compared nearly identical patients who had access to a different mix of available physicians, based on when they arrived at the hospital for treatment. The main finding here is that patients receive more care and are more likely to live if they arrive at the hospital when there are more intensive physicians, especially specialists, on duty. This suggests that policies that aim to reduce health care costs by lowering treatment intensity by physicians may in fact lower the quality of care for emergency patients.

The set of results from this project has impacted policy discussions and shined a light on (1) potentially high returns to inpatient intensity for emergency patients and (2) the potential for post-acute care to indicate low-quality care. In the search for waste in US healthcare, our results suggest that replacing post-acute care is an area where prevention may improve quality and lower costs.

This new empirical lens to measure waste is now being taught to PhD candidates in health economics and is being used by other leading researchers, including health economists David Card, David Chan, Peter Hull, Jason Abaluck, and others. The work has been featured in media outlets such as New York Times, NPR, and often in health policy blogs such as HealthLeaders, Not Running a Hospital and Code Red.

[January 2021]