Cost-Quality Tradeoff in Healthcare: Does it Affect Patient Experience?

Abstract

This study empirically investigates the effect of cost and average length of stay on experiential quality in healthcare. The author uses aggregate level data from 245 acute care hospitals operating in the state of California and performs ordinary least squares regression to test his hypotheses. Supporting the classic theory on cost-quality tradeoff, results show that hospitals do have a tradeoff between cost efficiency and experiential quality. Further, the author finds that hospitals with a higher average length of stay rate have, on average, lower experiential quality. In light of the recent move by Medicare to performance-based reimbursement, the author's results provide key insights to hospital administrators regarding cost-quality tradeoff and the tradeoff between achieving clinical quality and experiential quality outcomes.