Payer mix & financial health drive hospital quality: Implications for value-based reimbursement policies

Documented disparities in health care quality in hospitals have been associated with patients’ race, gender, age, and insurance coverage. We used a novel data set with detailed hospital-level demographic, financial, quality-of-care, and outcome data across 265 California hospitals to examine the relationship between a hospital's financial health and its quality of care. We found that payer mix, the percentage of patients with private insurance coverage, is the key driver of a hospital's financial health. This is important because a hospital's financial health influences its quality of care and patient outcomes. Government policies that financially penalize hospitals on the basis of care quality and/or outcomes may disproportionately impair financial performance and quality investments at hospitals serving fewer privately insured patients. Such policies could exacerbate health disparities among patients at greatest risk of receiving substandard care.