Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Wednesday, July 15, 2020

Endogenous Quality Investments in the U.S. Hospital Market

Endogenous Quality Investments in the U.S. Hospital Market

Craig GarthwaiteChristopher OdyAmanda Starc

NBER Working Paper No. 27440
Issued in June 2020
NBER Program(s):Health CareIndustrial Organization

High and increasing hospital prices have led to calls for price regulation. If prices are high because of consolidation, regulating prices could enhance welfare. However, high prices could also reflect increased willingness to pay by privately insured consumers for clinical and non-clinical quality. If so, regulating prices could reduce quality. We present a model of strategic quality choice where hospitals make quality investments to increase private revenue. We confirm the model's predictions across numerous quality measures including patient satisfaction, hospital processes, risk adjusted mortality, the revealed preferences of current Medicare patients, technology adoption, physician quality, and ED wait times.

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