We keep hearing physicians and service line leaders use “halo effect” to justify investment in advanced (and expensive) services. What they usually mean is that investing in an advanced service will automatically generate growth throughout the service line because purchasers will prefer a provider with an advanced service, even for only tangentially related care. But without evidence of halo effect, that behavior could lead to overinvestment in unsustainable advanced services and missed opportunities for investment in other areas.
We analyzed Medicare fee-for-service claims data to test whether that halo effect exists. We compared hospitals' performance to their respective markets and looked for patterns between hospitals that did or did not invest in advanced procedures within a given year. We hypothesized that if halo effect is a reliable source of growth, we’d see a strong improvement in performance among providers who invest in advanced procedures and we’d be unable to attribute growth patterns to any additional factors.
We found no compelling evidence that halo effect is a reliable source of growth. To the extent we did see improvement in performance, we were able to attribute it to other factors, such as greater diagnosis capture or physician recruitment.
Below, you’ll find our answers to four hard-hitting questions we have already received about this analysis:
What should I be taking away from this?
You should not incorporate halo effect into your investment decision-making process. But that doesn’t mean you shouldn’t be thinking of indirect impacts of your investments on growth—so long as they are quantifiable in advance and have a specific mechanism to drive new volume growth. For example, a prospective surgeon may be looking to perform on a cutting-edge technology; investing in the technology will help recruit the surgeon and thereby help capture the other services they would bring to the program.
Does this mean you shouldn't invest in advanced services?
No—there are good reasons to invest in advanced procedural services even without a guaranteed break-even. This includes better patient outcomes, improved operational efficiency, or staff satisfaction. But put that investment in the context of your overarching goals and be realistic about whether it will drive growth.
We define halo effect to include upstream and downstream revenue from a specific service. What do you think of that definition?
We didn’t look at upstream and downstream revenue specifically in our analysis. While advanced services often bring in significant upstream and downstream revenue, the same is true for less niche investments. For example, CABG also brings diagnostic, lab, and follow-up revenue. But we don’t usually measure it because CABG is likely to break-even on its own. In contrast, we’re tempted to include upstream and downstream revenue when estimating the value of TAVR because the procedure may not break-even on its own.
Considering upstream and downstream revenue some services and not for others risks overrepresenting the potential for advanced services and underrepresenting the potential for other investments.
If institutions that invested in advanced services didn’t outperform their markets, is it possible they would have underperformed even more without investing?
We tested for this! We analyzed individual facility performance for TAVR providers and found that a small number of cardiovascular providers vastly outperformed their markets, while the majority moderately underperformed. In other words, cardiovascular overperformance is concentrated at a small number of dominant players, all of which offered TAVR—but for institutions outside that top tier, it made little difference to overall service line growth whether they offered TAVR.
Our takeaway from this analysis is that hospitals that invest in advanced services typically already outperform their markets, and don’t risk underperformance if they choose not to invest.