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Hospital Competition, Quality, and Expenditures in the U.S. Medicare Population

Author

Listed:
  • Carrie Colla
  • Julie Bynum
  • Andrea Austin
  • Jonathan Skinner

Abstract

Theoretical models of competition with fixed prices suggest that hospitals should compete by increasing quality of care for diseases with the greatest profitability and demand elasticity. Most empirical evidence regarding hospital competition is limited to heart attacks, which in the U.S. generate positive profit margins but exhibit very low demand elasticity – ambulances usually take patients to the closest (or affiliated) hospital. In this paper, we derive a theoretically appropriate measure of market concentration in a fixed-price model, and use differential travel-time to hospitals in each of the 306 U.S. regional hospital markets to instrument for market concentration. We then estimate the model using risk-adjusted Medicare data for several different population cohorts: heart attacks (low demand elasticity), hip and knee replacements (high demand elasticity) and dementia patients (low demand elasticity, low or negative profitability). First, we find little correlation within hospitals across quality measures. And second, while we replicate the standard result that greater competition leads to higher quality in some (but not all) measures of heart attack quality, we find essentially no association between competition and quality for what should be the most competitive markets – elective hip and knee replacements. Consistent with the model, competition is associated with lower quality care among dementia patients, suggesting that competition could induce hospitals to discourage unprofitable patients.

Suggested Citation

  • Carrie Colla & Julie Bynum & Andrea Austin & Jonathan Skinner, 2016. "Hospital Competition, Quality, and Expenditures in the U.S. Medicare Population," NBER Working Papers 22826, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:22826
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    Citations

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    Cited by:

    1. Brekke, Kurt R. & Canta, Chiara & Siciliani, Luigi & Straume, Odd Rune, 2021. "Hospital competition in a national health service: Evidence from a patient choice reform," Journal of Health Economics, Elsevier, vol. 79(C).
    2. Giuseppe Moscelli & Hugh Gravelle & Luigi Siciliani, 2016. "Market structure, patient choice and hospital quality for elective patients," Working Papers 139cherp, Centre for Health Economics, University of York.
    3. Carine Milcent, 2021. "Competition in French hospital: Does it impact the patient management in healthcare?," Working Papers halshs-03152752, HAL.
    4. Jens Dietrichson & Lina Maria Ellegård & Gustav Kjellsson, 2020. "Patient choice, entry, and the quality of primary care: Evidence from Swedish reforms," Health Economics, John Wiley & Sons, Ltd., vol. 29(6), pages 716-730, June.
    5. Bayindir, Esra Eren & Jamalabadi, Sara & Messerle, Robert & Schneider, Udo & Schreyögg, Jonas, 2024. "Hospital competition and health outcomes: Evidence from acute myocardial infarction admissions in Germany," Social Science & Medicine, Elsevier, vol. 349(C).
    6. Hugh Gravelle & Giuseppe Moscelli & Rita Santos & Luigi Siciliani, 2014. "Patient choice and the effects of hospital market structure on mortality for AMI, hip fracture and stroke patients," Working Papers 106cherp, Centre for Health Economics, University of York.
    7. Gobillon, Laurent & Milcent, Carine, 2017. "Competition and hospital quality: Evidence from a French natural experiment," CEPR Discussion Papers 11773, C.E.P.R. Discussion Papers.
    8. Amitabh Chandra & Courtney Coile & Corina Mommaerts, 2023. "What Can Economics Say about Alzheimer's Disease?," Journal of Economic Literature, American Economic Association, vol. 61(2), pages 428-470, June.
    9. Carine Milcent, 2021. "Competition in French hospital: Does it impact the patient management in healthcare?," Working Papers halshs-03152752, HAL.
    10. Leon Moskatel & David Slusky, 2019. "Did UberX reduce ambulance volume?," Health Economics, John Wiley & Sons, Ltd., vol. 28(7), pages 817-829, July.
    11. Johannes S. Kunz & Carol Propper & Kevin E. Staub & Rainer Winkelmann, 2024. "Assessing the quality of public services: For‐profits, chains, and concentration in the hospital market," Health Economics, John Wiley & Sons, Ltd., vol. 33(9), pages 2162-2181, September.
    12. Ana I. Balsa & Patricia Triunfo, 2021. "The effects of expanded social health insurance on young mothers: Lessons from a pro‐choice reform in Uruguay," Health Economics, John Wiley & Sons, Ltd., vol. 30(3), pages 603-622, March.
    13. Giuseppe Moscelli & Hugh Gravelle & Luigi Siciliani, 2021. "Hospital competition and quality for non‐emergency patients in the English NHS," RAND Journal of Economics, RAND Corporation, vol. 52(2), pages 382-414, June.
    14. Propper, Carol & Kunz, Johannes & Staub, Kevin & Winkelmann, Rainer, 2020. "Assessing the Quality of Public Services: Does Hospital Competition Crowd Out the For-Profit Quality Gap?," CEPR Discussion Papers 15045, C.E.P.R. Discussion Papers.
    15. Giuseppe Moscelli & Hugh Gravelle & Luigi Siciliani, 2018. "Effects of Market Structure and Patient Choice on Hospital Quality for Planned Patients," School of Economics Discussion Papers 1118, School of Economics, University of Surrey.
    16. Moscelli, Giuseppe & Gravelle, Hugh & Siciliani, Luigi, 2023. "The effect of hospital choice and competition on inequalities in waiting times," Journal of Economic Behavior & Organization, Elsevier, vol. 205(C), pages 169-201.
    17. Roos, Anne-Fleur & O’Donnell, Owen & Schut, Frederik T. & Van Doorslaer, Eddy & Van Gestel, Raf & Varkevisser, Marco, 2020. "Does price deregulation in a competitive hospital market damage quality?," Journal of Health Economics, Elsevier, vol. 72(C).
    18. Xiaojun Lin & Miao Cai & Qiang Fu & Kevin He & Tianyu Jiang & Wei Lu & Ziling Ni & Hongbing Tao, 2018. "Does Hospital Competition Harm Inpatient Quality? Empirical Evidence from Shanxi, China," IJERPH, MDPI, vol. 15(10), pages 1-14, October.
    19. Bell-Aldeghi, Rosalind & Chopard, Bertrand, 2021. "Hospital multi-dimensional quality competition with medical malpractice," International Review of Law and Economics, Elsevier, vol. 68(C).

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    More about this item

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • L31 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Nonprofit Institutions; NGOs; Social Entrepreneurship
    • L4 - Industrial Organization - - Antitrust Issues and Policies

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