Information asymmetry and performance tilting in hospitals: a national empirical study

Abstract

Objective: To test the performance tilting hypothesis using information asymmetry (IA) within the community oriented activities of prospective payment system (PPS) hospitals.

Data sources: American Hospital Association (AHA) Annual Survey Database and Medicare Cost Report from the Centers for Medicare and Medicaid Services both in fiscal year 2000; Health maintenance organization (HMO) penetration from the Area Resource File.

Study design: A cross-sectional analysis was performed, using a national sample of 3162 PPS hospitals merged from the AHA data set and Medicare profit data. The individual hospital serves as the unit of empirical analysis. General linear model, multiple and logistic regressions are utilized to examine the association between IA and hospital performance indicators.

Principal findings: A positive relationship between IA and Medicare profit margins was found. Higher IA was associated with decreased likelihood that the hospital would report having a long-term plan for the health of its host community, and with increased likelihood of performance tilting.

Conclusion: Information asymmetry offers hospitals an advantageous position in achieving profit maximization. The study also documented the presence of performance tilting by health-care management. Whether increased information demands from a society accustomed to significant disclosure will reduce this agency problem is not yet clear.