Endogenous quality investments in the U.S. hospital market

On the bright side of market concentration in a mixed-oligopoly healthcare industry

We describe the healthcare industry as a mixed oligopoly, where a public and two private providers compete, and examine the effects of a merger between the two private healthcare providers on prices, quality, and welfare. When the price and (eventually) quality of the public provider are regulated, the cost synergies required for the merger to increase consumer welfare are less significant than in a setting with only profit-maximizing providers. When, instead, the public provider can adjust its policy to the rivals' behavior and maximizes a weighted sum of profits and consumer surplus (i.e., it has 'semi-altruistic' preferences), the merger is consumer surplus increasing if the public provider is sufficiently altruist, in some cases even absent efficiencies. These results suggest that ignoring the role and objectives of the public sector in the healthcare industry may lead agencies to reject mergers that, while would decrease consumer welfare in fully privatized industries, would increase it in mixed oligopolies.

The effect of hospital discharge price increases on publicly reported measures of quality

OBJECTIVE

To determine if increases in hospital discharge prices are associated with improvements in clinical quality or patient experience.

DATA SOURCES

This study used Medicare cost report data and publicly available Medicare.gov Care Compare quality measures for approximately 3000 short-term care general hospitals between 2011 and 2018.

STUDY DESIGN

We separately regressed quality measure scores on a lag of case mix adjusted discharge price, hospital fixed effects, and year indicators. Clinical quality measures included 30-day readmission rates for acute myocardial infarction, chronic obstructive pulmonary disease, heart failure, hip and knee replacement, and pneumonia; risk-adjusted 30-day mortality rates for acute myocardial infarction, chronic obstructive pulmonary disease, heart failure, and stroke; and 90-day complication rate for hip and knee replacement. Patient experience measures included the summary star rating and 10 domain measures reported through the Hospital Consumer Assessment of Healthcare Providers and Systems survey. We tested for heterogeneous effects by hospital ownership, number of beds, the commercial share of overall discharges, and market concentration.

DATA COLLECTION/EXTRACTION METHODS

We linked hospitals identified in Medicare cost reports to Medicare.gov Care Compare quality measures. We excluded hospitals for which we could not identify a discharge price or that had an unrealistic price.

PRINCIPAL FINDINGS

There was no positive association between lagged discharge price and any clinical quality measure. For patient experience measures, a 2% increase in discharge price was not associated with overall patient satisfaction but was associated with small, statistically significant increases ranging from 0.01% to 0.02% (relative to mean scores) for seven of ten domain measures. There was a positive association for five of ten patient experience measures in competitive markets and one measure in both moderately concentrated and heavily concentrated markets.

CONCLUSIONS

We found no evidence that hospitals use higher prices to make investments in clinical quality; patient experience improved, but only negligibly.