The potential financial benefits of quality improvement are well recognized—from avoiding complications and reducing length of stay to strengthening market position—but the relationship between quality and financial performance has been difficult to quantify.
That is, until now.
We recently analyzed hospitals across six cohorts to examine whether financial performance differed based on overall Vizient Quality and Accountability (Q&A) ranking. Hospitals were grouped into the top, middle three, and lowest Q&A quintiles and compared across four financial measures: operating margin, risk-adjusted direct costs, commercial payer mix, and commercial contracted rates.
Our findings reinforce the opportunity for health systems to view investments in quality and financial sustainability not as competing priorities, but as interconnected components of high organizational performance.
Top quality performers demonstrate stronger financial performance
Across every measure studied, hospitals in the top Q&A quintile outperformed those in the lowest quintile, with statistically significant differences (P<0.05).
Compared with hospitals in the lowest Q&A quintile, top performers had:
Note: Differences between top and bottom quintiles statistically significant P<0.05 for all values shown. (CDB data July 2024-June 2025). AHA Operating Margin data FY 2024 (October 2023-September 2024).
9.9 percentage points higher operating margins. Across all hospital cohorts, average operating margin was 6.3% among top-quintile hospitals compared with -3.6% among hospitals in the lowest quintile.
Note: Differences between top and bottom quintiles statistically significant P<0.05 for all values shown. (CDB data July 2024-Jun 2025).
17% lower risk-adjusted direct costs, reinforcing the connection between efficient cost management and high-quality performance.
Note: Differences between top and bottom quintiles statistically significant P<0.05 for all values shown. (CDB data July 2024-June 2025).
8 percentage points higher commercial mix, with commercial payer mix averaging 26% for top-quintile hospitals compared with 18% for the lowest quintile.
Note: Differences between top and bottom quintiles statistically significant P<0.05 for all values shown. (CDB data July 2024-June 2025).
22% higher commercial payment rates. Average commercial reimbursement was 257% of Medicare for top-quintile hospitals compared with 211% for hospitals in the lowest quintile.
Importantly, this relationship was consistent across middle-quintile hospital cohorts, suggesting that the connection between quality and financial performance is not limited to a particular hospital type. It also followed a clear stepwise pattern across Q&A performance levels: Top-quintile performers demonstrated stronger financial performance than hospitals in the middle three quintiles, which in turn outperformed those in the lowest quintile. Differences in financial measures between these three levels of Q&A performance reached statistical significance for all described (p<0.05).
Financial advantage helps, but it isn’t destiny
Vizient also examined hospitals that improved by at least two Q&A quintiles between 2022 and 2025 and ultimately reached the top quintile. While approximately two-thirds had an above-average commercial payer mix relative to their peers, one-third achieved top quality performance despite a below-average commercial mix.
These financially constrained high performers shared several characteristics. They demonstrated strong cost management, with an average direct cost index of 0.86 and 82% having a direct cost index below their cohort average. All were affiliated with large health systems spanning nine to 48 hospitals. This reinforces the idea that, when done well, system-level leadership and resources play an integral role in supporting quality improvement initiatives
Longitudinal analysis provided additional insight: Hospitals reaching the top Q&A quintile maintained a higher commercial payer mix relative to their cohorts and demonstrated both lower direct costs and a smaller increase in direct cost index from 2022 to 2025 compared with hospitals that remained in the bottom three quintiles.
What this means for health systems
The findings point to three important conclusions:
- Quality and financial performance are connected. Top-quality performers demonstrate stronger margins, lower risk-adjusted costs, greater commercial payer mix, and higher commercial reimbursement.
- Financial advantage helps but doesn’t determine quality performance. Hospitals can reach the highest levels of quality despite a less favorable payer mix when they effectively manage costs and build the organizational capabilities needed for reliable performance.
- High performance is an enterprise capability, not solely a quality department initiative. Sustainable improvement requires alignment across quality, safety, operations, finance, workforce, and strategy.
The path to stronger performance begins with treating quality as a shared operating discipline across the organization. Health systems that build this alignment can turn improvement efforts into a durable competitive advantage.
