The value of patient experience

Higher patient experience ratings are associated with higher profitability

Improving the patient experience can help a hospital improve its financial performance by strengthening customer loyalty, building reputation and brand, and boosting utilization of hospital services through increased referrals to family and friends.

Payers looking for better value are also helping to drive hospitals to focus on patient experience: Programs such as Medicare’s Hospital Value-Based Purchasing (VBP) Program are financially rewarding hospitals that have better patient-reported experience scores. As a result, patient experience scores for factors as diverse as nighttime noise level and doctors’ and nurses’ communication skills have become a key hospital performance measure.

Because of the patient and payment factors, one might expect that hospitals with better patient experience scores might perform better financially—but the relationship has not been well studied. To gain greater insight into the association between better patient-reported experience scores and hospital financial performance, the Deloitte Center for Health Solutions conducted descriptive and regression analyses using the most widely tracked measures of patient experience—the Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) scores—and examined their association with hospital performance measures such as net and operating margins and return on assets (ROA). To more clearly delineate the contribution of patient experience, the Deloitte Center for Health Solutions controlled for hospital and local area characteristics that can also affect hospital performance, including hospital ownership, location, teaching status, payer and patient case mix. Two main findings emerged:

• Hospitals with high patient-reported experience scores have higher profitability. Hospitals with “excellent” HCAHPS patient ratings between 2008 and 2014 had a net margin of 4.7 percent, on average, as compared to just 1.8 percent for hospitals with “low” ratings.
• The association of patient experience with financial performance is large, even after controlling for other hospital characteristics that can drive hospital performance. Compared to other hospitals in the same market (hospital referral region (HRR)), and controlling for hospital characteristics, a 10 percentage point increase in the number of respondents giving a hospital a “top-box” (9 or 10 out of 10) rating is associated with an increase in net margin of 1.4 percent and in ROA of 1.3 percent compared to hospitals receiving a “bottom-box” (0 to 6 out of 10) rating. However, unlike lower-rated hospitals, those hospitals receiving “top-box” experience ratings also have other characteristics that are potentially associated with both patient experience and financial performance, and such factors might not be as easily replicated by lower performers.

Mechanisms through which patient experience could improve hospital financial performance

The Deloitte Center for Health Solutions also studied the mechanisms through which the association between patient experience and hospital financial performance likely occurs. The results indicate that:

• Hospitals with better experience levels earn disproportionately more than they spend compared to those with lower ratings. Although higher patient experience scores appear to be associated with increases in revenue per adjusted patient day as well as in adjusted expenses, the magnitude of the effect is stronger for revenue. These results suggest that investments in patient experience increase costs but increase revenue even more, or hospitals with higher scores might have more resources to invest in patient experience.
• A highly engaged staff likely boosts patient experience, translating into better performance. Patient experience scores pertaining to interactions with nurses have the strongest association with hospital financial outcomes.
• VBP incentives likely contribute a small amount to the association of patient experience with hospital financial performance. Medicare VBP incentives (tied to patient experience) account for only seven percent of the association between patient experience and hospital financial performance, as measured by net margins.

Faced with multiple priorities and resource demands, health systems and hospitals may question the business value of collecting, analyzing, and acting upon patient experience data. However, these results suggest that good patient experience is associated with higher hospital profitability, and that this association is strongest for aspects of patient experience most closely associated with better care (in particular, nurse-patient engagement).

The results could also suggest that better-performing hospitals make larger patient experience investments. However, given the market shift towards patient-centered care and renewed payer emphasis on patient experience as a core element of care quality, these analyses show that hospital executives should consider investing in the tools and technologies necessary to better engage patients and enhance patient experience. Furthermore, although patient experience scores don’t always reflect quality-of-care outcomes, these analyses suggest that those aspects of patient experience most closely associated with better care (communication with nurses), also have the strongest association with hospital financial performance.