Unbiased Analysis of Today's Healthcare Issues

Does more spending improve outcomes?

Written By: Jason Shafrin - Jun• 18•17

A number of studies have claimed that increased health expenditures may result in no better, or even worse outcomes.  For instance, a paper by Fisher et al. (2003) looking at patients with acute myocardial infarction, colorectal cancer, or hip fracture finds that “Quality of care in higher-spending regions was no better on most measures and was worse for several preventive care measures.”  This analysis, however, examined variation in spending and quality by hospital referral region (HRR) and could suffer from the ecological fallacy.

A recent paper by Watson et al. (2017) examines the effect of increased spending out outcomes at the individual level among patients in neonatal wards.  The authors use the National Neonatal Research Database (NNRD).  The data contain information from infants treated in neonatal units in England between 2009 and 2013.  Costs were estimated based on Helathcare Reseource Group (HRG) codes and costs per intensive care cot day were estimated.  The key outcome variable was overall mortality and a secondary outcomes were in-hospital mortality and moribidity free survival.  The key explanatory variable cost per intensive care cot day.  The regression also controlled for the baby’s gender, gestational age, birth weight, and mother’s receipt of steroids as well as year, ward, and ward-year fixed effects. To control for the potential endogeneity, the authors also ran a fixed-effects instrumental variables (FE-IV) regression using patient distance to the nearest hospital as a instrument for the unit providing the treatment.

Using this approach, they found:

…a £100 increase in the cost per intensive care cot day (sample average cost: £1,127) is estimated to reduce the risk of mortality of 0.38 percentage points (sample average mortality: 11.0%) in neonatal intensive care. This translates into a cost per life saved in neonatal intensive care of approximately £420,000.

Their estimates for their secondary outcome also suggest that “reductions in the mortality rate are accompanied by equivalent rises in morbidity.”

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