Gowrisankaran G & Town R, (2003)

‘Competition, Payers and Hospital Quality’

Health Services Research 38, pp. 1403–1421

• Estimates the effects of competition for both Medicare and HMO patients on the quality decisions of hospitals in Southern California.
• Investigates whether increased competition among hospitals affects health outcomes for pneumonia and acute myocardial infarction (AMI) patients.

Key results:

• The estimates indicate that increasing competition for HMO patients appears to reduce prices and save lives and hence appears to improve welfare.
• However, increases in competition for Medicare patients appear to reduce quality and may reduce welfare.
• Increasing competition has little net effect on hospital quality in their sample (the HMO and Medicare effects cancel each other out).
• Based on these results the authors argue that the impact of competition on quality depends on hospital’s control over reimbursement rates. If the reimbursement rates are too low, hospitals may not have an incentive to compete for Medicare patients through better quality.
  

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