Locally Grown Hospital Meals: No Price Competition Means Providers Compete on Amenities

It’s common knowledge by now that most hospital prices do not bear a relation to reality in the same way that the prices of most of the other goods and services in the economy around us do. It’s generally not possible to see the price of many procedures before they have been performed and, even after, patients oftentimes find that no one in a hospital is able to tell them how much their procedure cost. As Elisabeth Rosenthal has noted in her “Paying Till It Hurts” series, the prices billed to insurers or government programs by the providers can vary widely even between hospitals just blocks apart, and patients can end up paying the price of a pretty fancy dinner just for a pack of gauze.

The opinions on the origins of this disaster, as well as ideas for solutions, vary. I myself see a lot of strength in the idea that our system of third-party reimbursement (patients pay insurance companies, who pay hospitals, who provide services to patients) has played a large part in obscuring prices and divorcing them from the underlying fundamentals of our economy, such that they no longer reflect accurate or useful information concerning the relative scarcity or desirability of the goods in question.

With that in mind, I’d like to take a look at a recent article by Natalie Jennings, posted in the Style section of the Washington Post. Jennings describes the seasonal, locally sourced menu at the University of Wisconsin Hospital, which includes butternut squash ravioli, as well as blueberry and goat cheese topped salads. The man behind that menu, Chef John Williams, is quoted throughout the Jennings article.

“In the industry, you’ve seen a lot of farm-to-table approach, especially within the restaurants,” said Williams, who previously worked at a spa. “Why not bring that to the health systems?”

The writer also includes a quote about healthy eating as it pertains to patient care from a representative of the American Hospital Administration:

“Patient care is no longer just about treating and healing those who come through our doors,” said Dr. Maulik Joshi of the American Hospital Association. “The bar on quality is continually raised and we must expand the ways we care for those in need. Healthy eating is one such approach, whether this be food provided in the hospital or education provided to patients about nutrition for care management and improved health. This component of overall wellness contributes to improved patient outcomes and healthier communities.”

Williams, Jennings, and Joshi are all right to emphasize the role that healthy eating plays for all of us, patients or otherwise, and it’s not surprising to me that hospitals are starting to put an emphasis on delivering in this area. That being said, I think this positive choice in terms of meal plans also reflects a broader economic trend throughout the health care sector and specifically hospital care, which can be summarized as follows: when hospitals cannot compete on price, they compete on amenities.

As I mentioned at the beginning of this post, price competition is, with a few very notable exceptions, virtually absent from the medical industry. Although you’d expect it to be the case that hospitals then shift toward competing on quality, instead competing on the qualities of the amenities that they provide. Take this example from CO that was reposted by Aaron Carroll at The Incidental Economist a couple years ago.

Concierge service. Jacuzzi tubs. Bacon-wrapped scallops or New York strip steak prepared by professionally-trained chefs and brought to your room.

These amenities can be found at most new hospitals in Colorado and across the country. Gone are the days of sterile, white hallways, fluorescent lights and cloth curtains separating patients in the same room. The newest hospitals offer bountiful natural light, warm-colored walls and floors, soothing art and private patient rooms with large windows and relaxation videos.

Sky Ridge Medical Center in Lone Tree features fireplaces on every floor. Children’s Hospital Colorado in Aurora offers video games in patient rooms. The cafeteria at the new $435 million St. Anthony Hospital in Lakewood includes a soda machine that can make 100 different types of drinks.

Notice that, in the Jennings piece above, Chef John Williams had formerly been employed at a spa before coming to the UW Hospital. There are certainly resonances of that sort of “spa treatment” in the Colorado description.

Why is the case that, when price competition isn’t an option, hospitals compete through the provision of amenities? As John Goodman argues, it’s probably cheaper than quality competition, so that’s one reason. On top of that, though, I’d venture a guess that it gets a larger response out of patients than quality competition does. Look, consumers are very good at discriminating between prices, but in an area like health care, where information on quality is relatively inaccessible and judgment of quality at the point of receipt would be nearly impossible for someone who is not a trained health care professional, patients probably are at a loss to really discriminate on the basis of quality. Amenities, like prices, however, are easy, and so that gets a rise.

I could be wrong about that; it’s just speculation. But it seems to make sense to me. And there’s nothing wrong with discriminating on the basis of amenities, if it’s what matters most to a particular patient. (As society keeps advancing and the economy grows, barring any major disasters or setbacks, I think it’s likely that both qualities and amenities will improve anyway, so that amenity discrimination will become more common). For those who would like to see a return to quality competition–or at least to having the option of quality competition–it’s worth considering that a return to price competition could be just what the doctor ordered.

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