ABSTRACT

Objectives: To describe the association between the form of hospitals' contracts—either markup from a benchmark or a discount from a list price—and performance: price, charge, cost, and length of stay.

Study Design: Retrospective observational study using administrative claims data matched with hospital characteristics from the American Hospital Association Annual Survey and the Healthcare Cost Reporting Information System. Data include a balanced panel of 1889 general acute care hospitals for the years 2011 to 2015.

Methods: Inpatient hospital commercial claims data from the Health Care Cost Institute were used to classify claims by contract type based on claim-line billed and allowed charges. Hospital-level performance measures—prices, charges, costs, and length of stay—were analyzed using linear regression models to identify the association of each measure with contract types. All measures were risk adjusted to control for differences in hospital case mix, and the regression specifications controlled for numerous hospital characteristics.

Results: Our estimate of the distribution of contract types in the data is similar to estimates using other methods. We find that discounted charges contracts are associated with higher prices and higher costs but not higher charges. Fixed-rate contracts are associated with lower prices as well as lower costs.

Conclusions: Limited research exists on the relationship between contract structure and hospital performance. Our results suggest that hospital performance is related to contract structure, possibly due to factors such as differences in bargaining strategies or ex post incentives.