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Discussion Paper

Do Higher-Priced Hospitals Deliver Higher-Quality Care?

Published: February 2022
Hospital prices in the US are rising faster than physician prices and inflation. Rising market concentration has been a key driver of rising hospital prices. Over the past 20-years, there have been nearly 2,000 mergers among the nation’s 6,000 hospitals. High prices and rising market concentration have led to calls to regulate hospital prices. This research, joint with Joseph Doyle (MIT), John Graves (Vanderbilt), and Jon Gruber (MIT), examines the extent to which hospital markets are functioning by examining whether higher priced hospitals deliver higher quality care.

The authors find that receiving care from high-priced hospitals in unconcentrated markets results in 52% higher health spending and 1.37 percentage points (47%) lower mortality. Higher prices in these markets appear to be cost effective. However, in concentrated markets, receiving care from high-priced hospitals raises health spending by 52% without any changes in quality. High provider prices in these concentrated markets likely reflect higher hospital markups.

Abstract and Citation