Conventional wisdom assumes that quality drives demand and provides hospitals with a competitive edge. Yet, University of Southern California professors Dana Goldman and John Romley challenge that assumption in their working paper, "Hospitals as hotels: The role of patient amenities in hospital demand," available online from the National Bureau of Economic Research.

They found that in crowded hospital markets, especially those populated by commercially insured patients, amenities might matter more than quality. Amenities such as private and family-friendly rooms, views, hotel-style room service meals and massage therapy, say Goldman and Romley, play an increasingly important role—so important that patients may choose a clinically inferior hospital because of them.

The professors also found that amenities supersede proximity. Their study of Medicare patients with pneumonia showed that they were willing to travel for care to an alternative, more distant hospital that had better amenities. A notable exception to the bias for amenities related to patients who needed emergent heart care. For those patients, clinical reputation became paramount.

This study builds on previous findings. A 2007 McKinsey and Company survey showed that only 20 percent of patients' choice was based on clinical quality, while a remarkable 41 percent was based on the nonclinical experience. All things being equal, patients still choose a hospital with amenities over one without.

The McKinsey study showed that physicians, too, placed considerable weight on the patient experience. While physicians say they consider technology, clinical facilities and staff when deciding where to admit their patients, nearly one-third said they would honor patient requests by referring them to a clinically inferior hospital that provided a superior nonclinical patient experience. This recent empirical evidence seems to confirm that a new customer value system is emerging.

Why Amenities Matter More Today

What's driving this amenity-centered trend? Goldman and Romley postulate that patients simply don't understand clinical quality and may be making choices on the basis of amenities because they are easier to understand. A 2005 Gallup Poll Panel health care survey found that more than half of respondents indicated that a facility's expertise in a particular area and a facility's history of medical mistakes or errors would influence their decisions a great deal. That was not surprising.

However, when researchers asked respondents where they would find this information, they had only a vague idea of where to locate reliable measures or how to use them. Thirty percent of respondents still relied on recommendations of family and friends, 39 percent said the courtesy of staff was important, and 31 percent chose a facility based on hospital appearance.

Rick May, M.D., a senior physician consultant for HealthGrades, a leading source for health care consumer quality information, suggests consumers may judge a hospital based on its physical environment. "Does the hospital look and smell clean?" he says. "Do the staff members seem to be friendly and relaxed?" Such impressions speak to organizational pride in the facility and a healthy work environment, both of which may lead to more satisfying patient experiences and better health outcomes.

Goldman and Romley say that amenities always have been relevant in hospital competition, but they seem to have grown in importance, perhaps because patients now have more say in selecting hospitals.

Defining Value More Broadly Than Amenities

As amenities increasingly drive demand, what are the implications for health systems? There are no easy answers, but here are a few guiding thoughts. We at the Samueli Institute, a nonprofit research organization that investigates the science of healing, argue that this discussion goes beyond amenities. Our research has found that creating what we call an optimal healing environment—one in which the social, psychological, spiritual, physical and behavioral components of health care are oriented toward supporting whole-person health—truly can transform the patient experience.

There are four domains in an OHE:

  • internal (healing intention, hope);
  • interpersonal (relationships, communication);
  • behavioral (integrative health care, healthy lifestyles);
  • external (physical space, eco-friendly).

Each of these domains, working in concert with the others, defines value more broadly and helps create whole-person care; this is what patients desire most and what helps employees thrive. Goldman and Romley's assertions as well as the McKinsey report make a strong case for this broader definition.

Amenities, which in many cases are components of an OHE, must be considered in a whole-systems view that appreciates the relationships among quality, cost and value. Multivariable approaches to defining value must be considered, including the physiological, life stage, emotion/affinity, generational cohort and socioeconomic effects on consumer choice.

Creating Value for a New Breed of Customer

Well-insured commercial patients are dwindling. While health systems need to grow market share, over-investment in the old volume-driven business model may not be wise. Initiatives related to population health, chronic-disease management and investments to create optimal healing environments may require a smaller investment that may reap better long-term value and return on investment across customer segments.

As commercial insurance dwindles, baby boomers are becoming a driving force among health care customers. Be sure your organization has an in-depth understanding about the distinguishing characteristics of boomers, fully appreciating that they are the most overly marketed-to and brand-fickle customers who ever walked the corridors of health services.

Boomers would rather switch than fight. Leading-edge boomers ignore switching costs (such as additional out-of-network costs) and typically will shop and switch more in a year than their parents did in a lifetime—usually in search of impeccably convenient mainstream access for solving their health care problems—including a focus on high-functioning aging, individualized, holistic and integrative approaches to care.

But be careful not to draw wrong conclusions. For example, Age Wave Impact studies have shown that baby boomers do not seethemselves as materialistic. So don't assume they are swayed by expensive-looking, five-star hotel amenities. They know they're not in a hotel.

Making a Low-Cost Investment

As demand for this type of patient-centered, whole-person care increases, it's accompanied by a plethora of challenging questions and concerns. Some obvious ones:

  • What will it cost?
  • As payment reform moves forward, how do we weigh the additional cost in the context of the overall value proposition?
  • How do we account for and measure the impact of amenities in terms of overall quality, productivity and cost?

There are other issues, too, related to both health system evolution and the entry of a new breed of customers. Hospitals and health systems do not have a well-tuned ear to the voice of the customer. We're a far cry from the days when physicians knew their patients well and tended to their needs within a reciprocal honor system that included home visits, barter and truly patient-centric care. That disappeared in the 1940s with the proliferation of specialists, community hospitals, treatment protocols and a new era of provider-centric care.

When Medicare and Medicaid programs came into being in the 1960s and employer-based commercial insurance coverage became the norm, powerful third parties effectively created a payer-centric system. Now, as value-based accountable care recalibrates expectations of both payers and patients, there's bound to be a lot of static, especially from baby boomers who have changed every industry they've touched.

OHE includes amenities that have an impact on demand and need to be taken seriously. The focus should be on creating a cultural shift to health and healing that will make a significant contribution beyond surface cosmetics.

Further studies on the underlying drivers and their relationship to perceived quality will be important. In the conundrum over perceived quality, two things seem clear:

  • From the patient perspective, experience matters more than data.
  • There is an opportunity to make modest investments that can improve the patient experience.

As health leaders face growing financial constraints—leaving little tolerance for error—investment in lavish accoutrements seems questionable. Prudent, low-cost investment to create optimal healing environments offers higher long-term potential to improve patient experience, outcomes, staff productivity and cost.

Sita Ananth, M.H.A., is the director of knowledge services at the Samueli Institute in Alexandria, Va. She is also a regular contributor to H&HN Daily. Mary Hassett is the president and principal at Integrations Inc., a strategic consultancy in Greenville, S.C.