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Market-Based Solutions to Vital Economic Issues


Kenan Institute 2024 Grand Challenge: Business Resilience
Market-Based Solutions to Vital Economic Issues
Jul 31, 2023

Consistency is Key: How Costing Information Consistency Helps Hospitals Manage Costs


Health care costs in the United States make up a larger proportion of gross domestic product (GDP) than in any other developed country and continue to rise. We examine whether the use of consistent metrics in costing information systems across hospitals provides one avenue to reduce these costs. We refer to such consistency as “costing information consistency” or CIC and empirically measure it by identifying whether hospitals in a multihospital system share the same costing system vendor. Using M&A activity among vendors as an instrument for exogenous changes in hospital CIC, we find that CIC is associated with a 13.3% reduction in operating expenses, suggesting that increased cost comparability from CIC helps hospitals identify ways to reduce operating expenses by identifying clinical and administrative best practices. Further, it appears that CIC allows hospitals to decrease costs without sacrificing quality of care. We find no significant association between CIC and patient satisfaction, mortality, or readmission rates, and we see that hospitals with increases in CIC reduce expenses related to administrative and support services while increasing resources directly related to patient care. Based on our findings, we estimate that introducing CIC in all inconsistent US hospitals could result in a 3.8% reduction in economy-wide hospital expenses, or roughly $45 billion.

Note: Research papers posted on SSRN, including any findings, may differ from the final version chosen for publication in academic journals.  

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