Transparent Environments and Hospital Performance in Cost, Quality, and Efficiency

The goal of this research is to understand the interwoven relationships among policy, market, and organizations in health care. Investigating how transparency and competition influence health care providers’ performance from a three-dimensional managerial perspective, I found that the current transparency tools did not contribute to achieving the intended policy outcomes. The effectiveness of APCDs was limited in that the state-governed databases have failed to curtail hospital costs nor improve quality of care. Data availability was found to only partially contribute to quality of care. Competition worked for higher hospital technical efficiency and perceived outcome, yet not for cost nor clinical outcomes. With regard to hospital costs, I found that transparency policy is significantly related to higher average hospital operating expenses, regardless of market competition. This was in contrast with the hypotheses that the disclosure of data would induce cost reduction, and that competition would provide incentives to hospitals to economize their operating expenses. The findings raise concerns about the efficacy of transparency tools and market competition for cost savings in health care. The negative association between hospital expenses and market competition under greater transparency suggest that hospitals still compete largely on quality rather than costs. Despite results that did not support the hypotheses, this study is cautious to conclude that provision of information or market competition fail to contain hospital costs, because cost analysis alone, without regard to quality and efficiency, can be misleading if not self-defeating (Porter, 2010). The role of public reporting and competition warrants multifaceted assessment because the U.S. health care system seeks multiple goals not limited to cost containment. It is widely agreed that public disclosure of quality information fosters a spirit of openness in health care markets, where problems of asymmetric information are embedded. Despite the merits of transparency, the present study did not offer supportive evidence for the public data profiling on quality of care, and learned that pursuing transparency may even inadvertently harm quality of care. The ability of transparency initiatives to enhance quality of care remains obscure. The data profiling of hospital performance was found to have power to differentiate hospitals’ quality of care, but it failed to reach the desired outcomes without market pressure. In addition, market competition is one of the devices that steered hospitals toward quality improvement. It is important to note that market competitiveness can also work in collaboration with transparency policy in achieving enhanced quality performance. The study on transparency, competition, and technical efficiency of hospitals demonstrated inconclusive patterns in the relationships among them. The impact of APCDs reported a negative association with efficiency, while the availability of patient satisfaction data showed a positive link to efficiency with market competition as a mediating variable. It was noteworthy that specific policies on disclosure of hospital information may have disparate impacts on hospital technical efficiency. The divergent policy impact possibly stems from providers’ managerial strategies or consumers’ selection pathways. From a provider-oriented perspective, I assumed that the two types of transparent environments may create different market pressures on hospitals to perform better by reducing costs or improving quality of care. One policy made hospitals focus more on quality than costs, and the other made hospitals focus more on costs than quality. It is important to note that different transparency approaches have different impacts. I assume that the disparate policy impacts may stem from the different public awareness and policy designs that Hospital Compare data and APCDs have, even though they pursue similar goals through public reporting. The two transparency initiatives have different levels of public awareness that come from the supremacy of ownership. Hospital Compare data, managed at the federal level, is more widely-acknowledged by over 4,000 Medicare-certified health care providers than by APCDs. In addition, whether the performance data reported by hospitals are tied to payment is one of the major determinants for the difference. One suggestion for improving the efficacy of APCD is to tie the state-mandated reporting to the state Medicaid payment system. All things considered, I conclude that a transparency policy alone is not likely to produce the intended outcomes (Jencks, 2000; Lemire et al., 2013), and thus there is need for complementary tools for the current public reporting, if not a complete redesign of the tool. I also noted that the existence of varying public reporting schemes may generate confusion instead of clarity (Austin et al., 2015). The current performance measurements were fragmented and often misaligned among various public reporting initiatives at the different levels (e.g., state vs. federal levels). They should be better aligned in order to provide meaningful guidance to health care service organizations that face multifaceted pressures to outperform in the market.