Association of Hospital Spending Intensity With Mortality and Readmission Rates in Ontario Hospitals

By Therese A. Stukel, PhD; Elliott S. Fisher, MD, MPH; David A. Alter, MD, PhD; Astrid Guttmann, MD, MSc; Dennis T. Ko, MD, MSc; Kinwah Fung, MSc; Walter P. Wodchis, PhD; Nancy N. Baxter, MD, PhD; Craig C. Earle, MD, MSc; Douglas S. Lee, MD, PhD
JAMA, March 14, 2012

The extent to which better spending produces higher-quality care and better patient outcomes in a universal health care system with selective access to medical technology is unknown.

Numerous studies have investigated whether higher health care spending produces better patient outcomes and higher quality of care. Evidence from the United States and other countries has been conflicting. Several studies focusing on short-term outcomes within a given state found that being treated in higher-spending hospitals was associated with better in-hospital or 30-day mortality. In contrast, a national study found that regional differences in spending intensity were largely attributable to use of the hospital as a site of care and greater overall use of specialists, imaging, and diagnostic testing but that patients treated in regions with higher spending intensity did not have better survival or quality of care. Whether these findings would hold true in a country with universal access to health care but a far lower supply of specialists and more selective access to medical technology is unknown.

Our objective was to assess whether acute care patients admitted to Canadian hospitals that treat patients more intensively (and at higher cost) have lower mortality and readmissions and higher quality of care.

We found that higher hospital spending intensity was associated with better survival, lower readmission rates, and better quality of care for seriously ill, hospitalized patients in Ontario in a universal health care system with more selective access to medical technology. Higher-spending hospitals were higher-volume teaching or community hospitals with high-volume or specialist attending physicians and having specialized programs, such as regional cancer centers, and specialized services, such as on-site cardiac catheterization, cardiac surgery, and diagnostic imaging facilities. The study also points to plausible mechanisms through which higher spending may be associated with better outcomes.

Benefits appeared early, suggesting an acute-phase hospital effect. For acute conditions, timely access to preoperative and in-hospital specialist care, skilled nursing staff, rapid response teams, cardiac high-technology services, and regional cancer centers, all found in the higher-spending systems, are related to better outcomes. These systems also provided consistently, but not strikingly, higher levels of evidence-based care and collaborative ambulatory care, both shown to improve care.​ Higher spending on evidence-based services delivered in the acute phase of care for severely ill hospitalized patients—by far the largest component of spending for our cohorts—is indeed likely to be beneficial.

To place the study in context, the United States has a 3- to 4-times higher per capita supply of specialized technology, such as computed tomography and magnetic resonance imaging scanners, but a similar supply of acute care beds and nurses. Ontario 2001 population rates of cardiac testing and revascularization lagged behind corresponding 1992 US rates and paralleled the supply of cardiologists and catheterization facilities. It is therefore possible that Canadian hospitals, with fewer specialized resources, selective access to medical technology, and global budgets, are using these resources more efficiently, especially during the inpatient episode for care-sensitive conditions. Canada’s health care expenditures per capita are about 57% of those in the United States. At this spending level, there might still be a positive association between spending and outcomes.

We cannot rule out the possibility that higher-intensity hospitals coded more aggressively, but there is less incentive to do so in a system with global hospital budgets.

This study shows that in Ontario, a province with global hospital budgets and fewer specialized health care resources than the United States, outcomes following an acute hospitalization are positively associated with higher hospital spending intensity. Higher spending intensity, in turn, is associated with greater use of specialists, better patient care, and more use of advanced procedures. These results suggest that it is critical to understand not simply how much money is spent but whether it is spent on effective procedures and services.

eAppendix – to article above (15 pages):

Costing Data Sources

The following is an excerpt from Guidelines on Person-Level Costing Using Administrative Databases in Ontario that describes the costing methodology for acute inpatient hospitalizations, emergency visits (ED), and physician services, based on Ontario healthcare utilization data. Total costs (direct costs and overheads) for acute care and ED are available from the Ontario Ministry of Health and Long-Term Care (MOHLTC) Health Data Branch and are based on Ontario Cost Distribution Methodology (OCDM). Fees associated with physician visits are available directly from the Ontario Health Insurance Plan (OHIP) Schedule of Claims and Benefits while fees paid to physicians are tracked in the OHIP physician billing database.


No Free Lunch: The Relationship Between Cost and Quality

By Karen E. Joynt, MD, MPH; Ashish K. Jha, MD, MPH
JAMA, March 14, 2012


For the past 30 years, research from investigators at Dartmouth has demonstrated large and persistent variations in costs and quality across the US health care system. Beyond simply showing that cost and quality vary by geography, the Dartmouth Atlas has demonstrated that in many communities, care is so fragmented and ineffective that greater spending on Medicare beneficiaries often leads to worse outcomes because some patients receive services that are redundant and low value and that may even have substantial risks.

However, some US policy makers have misinterpreted the Dartmouth research and in the troves of data have found what they believe to be a free lunch: given the inverse relationship between costs and quality, it follows that it should be possible to simultaneously reduce spending and improve care. Although this notion is attractive, much of the subtlety of the Dartmouth work has been lost in translation. What Dartmouth investigators have documented through careful work is that dysfunctional systems produce expensive, poor-quality care.

Data from Dartmouth researchers and others have thus led policy makers to feel comfortable with broad payment reductions, in many cases targeting hospitals as a major source of savings for the Medicare program. The Affordable Care Act requires that the Centers for Medicare & Medicaid Services (CMS) make a series of payment reductions to hospitals, and CMS has proposed other reductions. Nearly every proposal to reduce Medicare spending, from Democrats and Republicans alike, seems to contain reductions in Medicare payments to hospitals. The notion that payments to hospitals can be reduced while maintaining or improving the quality of care delivered at these hospitals has become so ingrained in policy circles as to be a given.

Recently, however, an increasing amount of evidence has emerged that should counter this misperception. Several studies suggest that higher spending at the patient or hospital level may in fact be associated with better clinical outcomes.

What are federal policy makers to do? One lesson is that although broad-based reductions in hospital reimbursement may spur some institutions to innovate and eliminate waste, others will surely cut costs indiscriminately, eliminating exactly those services that are vital for good hospital care. Given that many hospitals may not have a clear sense of how to make these reductions without compromising on important services and personnel, patients will likely be negatively affected. An alternative approach is to target poor coordination, wasteful spending, and ineffective care more directly through programs such as bundled payments and accountable care organizations, which encourage coordination and integration first and spending reductions second. Ultimately, the best way to save money on hospital care is to more aggressively target preventable hospitalizations by bolstering primary care. These kinds of efforts are more likely to be successful in eliminating waste without jeopardizing patient outcomes. Although paying hospitals less may appear to be a good strategy to save money, the findings reported by Stukel et al serve as a timely reminder that this approach is likely to have negative consequences for patients.

This is a landmark study. Among Ontario hospitals, higher spending intensity was associated with lower mortality, readmissions, and cardiac event rates. Let’s see if we can learn the right policy lessons from this.

With our very high levels of health care spending, yet mediocre quality and outcomes, attention has been directed to attempting to identify the basis of these discrepancies, especially by looking at the Dartmouth findings which have suggested that all too frequently there is no relationship or perhaps even an inverse relationship between greater spending in hospitals and high quality outcomes. This task has been made difficult by the fact that several other studies have shown that greater spending has improved outcomes.

The authors of this new study decided to look at hospitals in Ontario, Canada to try to identify more precisely whether or not increased spending does improve quality and outcomes. Although they didn’t state this as a reason, this was an astute move since Canadian hospitals are globally budgeted – a fact that dramatically reduces the incentives to increase the intensity of services for the purpose of increasing revenues. Attention is given to using resources to benefit the patient, without the perverse motive of increasing income by adding services of negligible or negative value.

In this environment, it worked. If patients needed more care, they got it, and they were better off for it. Incidentally, even with this extra care, they spent much less per patient than we do in the United States.

In the JAMA editorial accompanying this article, the authors indicate that this confirms further that there is “no free lunch” in trying to recover higher costs while improving quality. They suggest a few policy lessons.

Of great importance, efforts to reduce spending in high cost hospitals should not be indiscriminate since that risks eliminating “exactly those services that are vital for good hospital care.” Such reductions can negatively affect patients.

They suggest targeting “poor coordination, wasteful spending, and ineffective care more directly through programs such as bundled payments and accountable care organizations, which encourage coordination and integration first and spending reductions second.” Integrated, coordinated care is a great idea, and likely accounts for much of the improved outcomes in Ontario hospitals. But can we in the United States really achieve this through bundled payments and accountable care organizations?

Only certain clinical scenarios are subject to bundling. Even when bundled, the cost containment is achieved by providing a discount to the bundled package. Not only are there pricing issues, such as possible inadequate funding of the services, there is the much greater problem that this does nothing for total global spending. It more likely results in not much more than mere cost shifting. That won’t correct the fundamental dysfunctions in U.S. health care financing.

Much has been written about accountable care organizations. Unfortunately, as they are evolving, it looks like they won’t be much more than a replay of managed care innovations such as physician-hospital organizations, or loose provider networks under an HMO umbrella – except all dressed up in new clothing. It is particularly difficult to understand how the organization can be accountable for the care of the patient, when that patient is free to obtain care anywhere and may not even be aware that they are assigned to one organization. Again, integration and coordination are great, but that should occur throughout the medical community at large rather than through isolated, commercialized entities.

A most important policy lesson advanced by the editorialists is that “the best way to save money on hospital care is to more aggressively target preventable hospitalizations by bolstering primary care.” In fact, Canada has a much more robust primary care infrastructure than the United States, which is likely another contributor to getting the right patients into the Ontario hospitals at the right time. We need to do much more to reinforce primary care in the U.S. – far more than the meager measures in the Affordable Care Act.

The paramount take home policy lesson is that a single payer system such as that in Canada not only has vastly superior methods of financing and distributing health care resources efficiently and equitably, it also creates a milieu in which the patient is placed at the pinnacle, and the health care system is positioned to serve that patient optimally.