Why Is There a Problem with Health Care Quality?

A version of what follows appeared at the Health Affairs Blog and was based on a paper I wrote with Gerald Musgrave and Devon Herrick.

Go to the web site of the Detroit Medical Center (DMC) and you will learn that DMC facilities rank among the “nation’s best hospitals” by U.S. News & World Report and that they have won other awards.  The DMC has some of the “best” heart doctors; it is “tops” in cancer care; and it ranks among the “nation’s safest hospitals.”  Three of its hospitals, for example, meet Leapfrog standards (only one other Michigan hospital system does so, you will be told) and two have received Leapfrog’s “top hospital” award (no other Michigan hospital, the site says, made the list).

Lest you doubt that the Detroit Medical Center is competing for patients based on quality, the site informs you that the DMC “is dedicated to staying ahead of the crowd when it comes to the quality of our care.”  The language clearly implies you’re risking your life if you patronize a competitor.  “If you want a hospital with walking trails or a day spa, go someplace else,” the site advises.  “Just don’t expect the latest in patient safety technology.  Because 100-percent medication scanning is only at DMC.”

Several questions naturally arise.  Why aren’t more U.S. hospitals competing for patients in the same way the DMC does?  Why isn’t the DMC competing even more aggressively?  Some hospitals in India, Thailand and Singapore, for example, disclose their infection, mortality and readmission rates and compare them to such U.S. entities as the Cleveland Clinic and the Mayo Clinic.  Clearly the DMC is competing on the time price of care.  It even has a 72 hour guarantee on MRI scans (yes, they’re available on Saturdays and Sundays).  But why doesn’t it also compete on the money price of care by posting fees patients can expect to pay?


All you do is treat me bad.
Break my heart and leave me sad.

How We Pay for the Three Dimensions of Care. Think of health care as having three dimensions: a quantity dimension (e.g., the units of service third-party payers typically pay for, such as office visits, diagnostic tests, etc.), a quality dimension (e.g.,  such factors as lower infection, mortality, and readmission rates, etc.) and an amenities dimension. By increasing the quality of care and the amenities surrounding that care, providers can make their basic services more attractive to patients, provided they have an incentive to do so.

As in the market for other goods and services, people pay for care with both time and money.  What makes health care unusual, is that for most patients, the time price of care is a greater burden than the money price of care – since third-party payers pay all or almost all of the provider’s fee. For primary care, emergency room care, ancillary services and increasingly for many traditional hospital services, time is the principal “currency” patients use to purchase health care the United States, just as it is in other developed countries.

Market Equilibrium. In a third-party payment system, the provider’s fee, including the money price paid by the patient, tends to be set by an entity outside the doctor-patient relationship. For a given unit of service and a given total fee, that leaves a time price, quality and amenities. Of these three variables, however, only two are typically visible or inferable. The quality variable is normally hidden.  As patients respond to what is visible and move back and forth among providers, there will be a tendency toward uniform wait times and uniform amenities. (Think of these as the market clearing time price and the market clearing level of amenities.) Or, if there is a trade-off between waiting and amenities, the rate of substitution will tend to be uniform.

There are no natural equilibrating forces bringing about uniform quality of care, however.  As long as quality differences remain invisible, they can persist without affecting the patients’ demand for care. This is consistent with the findings that the quality of care varies considerably from provider to provider and facility to facility,  as well as the discovery that variations in the quality of care delivered are unrelated to the kind of insurance people have or even whether they are insured at all. (Note, however, that most measures of quality are measures of inputs, not outputs; that at least one study finds there is little relationship between these inputs and such outputs as reduced mortality; and some have questioned whether even hospital mortality rates are reliable indicators of quality.)

Effects on Quality of Care. Lack of quality competition is in part the result of certain characteristics of health care quality. What we call “core quality” is not a variable at all. It is the result of other decisions made by the providers.  Since the vagaries of medical practice are many and since the decision calculus of doctors will often differ, this allows for considerable quality differences. Beyond this core level, quality improvement is a decision variable and improvements are costly. However, since it is difficult and costly for patients to secure quality data on their own, information about quality typically comes only from the providers.

Such communications are unlikely, however, unless providers by means of quality improvements are able to shift demand (and, therefore, revenue), sufficient to pay for those improvements. In general, this is not the case.

Comments (21)

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  1. Vicki says:

    Love the Supremes. Great pairing. You should do this more often.

  2. Ken says:

    Great post. First sensible thing I have seen on this topic. All I can say is, more, more.

  3. Joe S. says:

    Good analysis. It appears that if providers do not compete on price, they do not compete on quality either.

  4. Brian Williams. says:

    Competition is the key. No central plan or egalitarian dream will ever be able to increase health care quality, any more than the Soviets were able to dictate how much wheat will be needed for the winter. And John Goodman is one of the only people I know talking about this.

  5. Paul says:

    A very well written article and a revealing one…although I’m not happy with your normalizing atrocities in medical care the way you present them here

  6. Keith says:

    Re measures of quality and the relationship between inputs and outputs: Yes, this is key! Fortunately, the hospital world is beginning to recognize that improvement on process measures does not necessarily improve quality and patient safety outcomes. Indeed, The Joint Commission (TJC) has shifted its hospital accreditation focus away from these busy-work process measures and towards “accountability” measures, which are measures for which there is evidence that improvement on the measure leads to improved clinical outcomes. (See for example, this NEJM article: http://healthpolicyandreform.nejm.org/?p=3580.)

    Given that TJC publishes these data, I suspect/hope that hospitals will increasingly compete for my business by touting their performance on accountability measures and not with meaningless-but-impressive-sounding claims like “We have 19 board certified cardiologists on staff.”

  7. John Hoff says:

    The preamble to HHS’ recently published proposed rule on ACOs assures us that competition in the presence of regulated prices fosters improved quality.

  8. Neil H. says:

    Excellent post.

  9. Seamus Muldoon MD says:

    In terms of meaningful measurements of quality Leapfrog is the hospital equivalent of Who’s Who Among American High School Students. Send in your $20 and a completed application (as long as you color inside the lines) and they will send you a plaque to hang on the wall!

  10. Ever notice that while driving on any major road in America one sees billboards touting that the local hospital is in the top 100 as certified by this or that “prestigious” firm or accounting group. This in itself has become a health care industry worth multiple millions each year. Maybe I am a bit cynical, but I believe the hospitals work the data to appeal to the firm they are paying to say the hospital is outstanding in this or that quality.
    Every patient is unique and the special skills needed for that particular patient may or may not be available in the hospital that has been declared “outstanding”. All this paid evaluation by hospitals is aimed at the patient trying to decide where and what to do. What the patient really needs is a trusted knowledgeable physician who knows what the patient needs and where is the best place to meet that need.

  11. Angel says:

    The quality of health care a person receives is based on personal motivation to take care of oneself by living a healthy lifestyle and no government agency can provide this.

  12. Erik says:

    From the article:
    “What makes health care unusual, is that for most patients, the time price of care is a greater burden than the money price of care – since third-party payers pay all or almost all of the provider’s fee.”

    I do not agree with this statement as I have paid a premium for insurance coverage for 25+ years and received very little benefits due to good health for most of those years. This was an advantage for the insurance companies.

    Recently I had cancer and went through treatment. Although a third party handled the payment for my contracted benefits, it was paying my providers using my money. Money I had paid in premiums over the years to receive these benefits. If the insurance company was prudent they invested all my premium payments over the years and made money on financing my health benefits. This is a basic tontine.

    Doctor’s need to stop blaming third party payer reimbursement formulas for their lack of competition and publish their rates so consumers can decide where the market should move because we all pay one way or another. Either in premium or direct costs.

  13. Jeff says:

    I believe, on the average, patients are paying about 13 cents out of pocket for every $1 they spend on health care. So they are not paying full price, and often they pay no price at all. So I agree, for most patients — certainly for primary care — the time price is higher than the money price.

  14. Dr. Muldoon,
    I agree.
    For $200.00 you can be one of the top 15,000 US physicians and get a plaque…

    I respectfully disagree with your conclusion. It is a third party problem that is the root cause of the problem.
    Do you really think that having you pay premiums through your insurance man/Uncle Sam to the third party bean counters whose people deny payment claims from physicians who have to hire people to deal with their regulations and data mining in order to get paid an amount that the physician would like to pay but can’t because the third parties tell them what they are worth and eventually pay them later but the physician doesn’t really know if he’s been payed what he should of because he is overwhelmed by the number of patients he has to see and he is worried about his patients with real problems like cancer, mental health disease, etc who demand his attention as well as his family and keeping up with the literature and board certifications etc., etc.,
    is an efficient system?

    An easy system is having the patient (consumer) pay the physician directly…..

    good post and it highlights
    Two big problems:
    1. The cost for employers for their employees to be gone from work.
    2. The cost for patients to take off work to get treated….

    26 yo patient today. She is a dancer who came for help with her Vicodin addiction.
    Erik…my published price to give her unlimited care with my cell phone, same day service and manage her over the phone is $3.46/day…

    She signed up. She said, “I make that in 4 minutes”…

  15. John Goodman says:

    @ Keith

    Good point. Outputs, not inputs are what counts.

    @ Seamus

    Same point. I think

    @ John Hoff

    Just shows the folks at HHS do not understand economics.

    @ Dr. Fisher

    Our hospital billboards are the European equivalent of signs that say “historic castle” or moat, or church.

    @ Erik

    You have cause and effect all backwards.

    @ Dr. Ewin

    When the typical concierge doctor leaves the system he takes, say, 500 patients with him and leaves 2000 behind. If all doctors become concierge doctors what will happen to eveyone left behind? just a question.

  16. Earl Grinols says:

    Ironically, prices are one of the most important and easiest features to fix of the present dysfunctional health care non-system. A few sentences of legislation could create a requirement to report prices for health care items and establish most favored customer pricing (similar to most favored nation status in international trade) where every buyer is charged the same price. It is an appropriate role for govenment to enhance competition, in this case through facilitating information by posting such prices. Other searchable, filterable data would also fit nicely on a government website.

  17. John
    If all pcp’s became concierge physicians, then their would be a huge demand by 2000 for pcp services.
    If all pcp’s retired early or left their practice for another job opportunity, who would take care of all 2500???

    With increasing demand, astute med students may be attracted to primary care.
    With simple models, devoid of tp’s, they may be insentivized given the financial rewards and personal satisfaction of providing the kind of care we went into this field in the first place.
    My son-in-law is an intern in Ortho. He does not want to be a pcp. It’s not his calling. But, salary may be an independent factor in the fellowship he chooses (hand, hip/knee replacement, etc.). So money is always a factor b/c he has invested 14 years of school/training/etc…… Delayed gratification.

    The bigger question:
    How do we transition and educate young pcp residents to fill the void of taking care of the 2000 (or 2500) who have lost their pcp b/c they became a concierge doc?

    Take a stab at the answer…..

    and an easily implementable business model (fee for care), we would attract some of our brightest med students back into primary care

  18. Oops
    Disregard the last 3 sentences

  19. Lori O'Connor says:

    In no way does healthcare follow a typical market pattern. The consumers aren’t the purchasers, the costs are usually unknown and variable, and market prices are not affected in the short term by demand.

    Also, the quality of care in the U.S. is highly subjective (often influenced by the consumers own knowledge), making it nearly impossible for average consumers to make educated decisions and purchases.

  20. Lori,
    I have to disagree with you and only in respect to primary care fee for care models.
    The consumers ( our patients) pay us directly and know exactly the price (and savings).
    They determine quality bc they know what the goals are for their health (hgA1c < 6.5, blood pressure < 120/80 if ur a diabetic, yearly diabetic eye exams). We teach them.
    We do quality/satisfaction surveys every month…….{bc they pay us).
    Our concierge practices r the " medical home" for patients needing primary(
    In terms of education… When I take 1-2 hours with patients to educate them,
    They r able to make informed decisions.
    Also, I negotiate prices for them so if u need an MRI of ur back….
    Instead of paying over $2000 next door, I can get it for $450 some where else.
    They really appreciate it. You would too

  21. Bob Suter says:


    More than the DMC tries to compete on quality- for some reason, they are just getting the press.

    In competitive markets most systems try to compete on quality; here in Dallas, UTSW, Baylor, Presby, Methodist, and HCA are all doing it in spades. They are not really competing on price to individuals though on any grand scale- you are right on that point and I get that.