The link between hospital quality and profitability of outpatient services offered.

The analysis studies the relationship between hospital quality and hospital profits for a sample of 94 Alabama hospitals. Quality is measured by four groups of procedures performed on newly-admitted patients as suggested by the Center for Medicare and Medicaid Services. Profit is measured for five outpatient services. We find that the quality of inpatient care predicts profits in three of the five outpatient services. We also find that the association is due primarily to an increase in outpatient volume in response to quality rather than to higher profit margins. The notable exception is for profit margins for cardiac and surgical care.