IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/11226.html
   My bibliography  Save this paper

The Effects of Competition on Variation in the Quality and Cost of Medical Care

Author

Listed:
  • Daniel P. Kessler
  • Jeffrey J. Geppert

Abstract

We estimate the effects of hospital competition on the level of and the variation in quality of care and hospital expenditures for elderly Medicare beneficiaries with heart attack. We compare competition's effects on more-severely ill patients, whom we assume value quality more highly, to the effects on less-severely ill, low-valuation patients. We find that low-valuation patients in less-competitive markets receive more intensive treatment than in more-competitive markets, but have statistically similar health outcomes. In contrast, high-valuation patients in less-competitive markets receive less intensive treatment than in more-competitive markets, and have significantly worse health outcomes. Since this competition-induced increase in variation in expenditures is, on net, expenditure-decreasing and outcome-beneficial, we conclude that it is welfare-enhancing. These findings are inconsistent with conventional models of vertical differentiation, although they can be accommodated by more recent models.

Suggested Citation

  • Daniel P. Kessler & Jeffrey J. Geppert, 2005. "The Effects of Competition on Variation in the Quality and Cost of Medical Care," NBER Working Papers 11226, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:11226
    Note: HC IO AG
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w11226.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Tay, Abigail, 2003. "Assessing Competition in Hospital Care Markets: The Importance of Accounting for Quality Differentiation," RAND Journal of Economics, The RAND Corporation, vol. 34(4), pages 786-814, Winter.
    2. Daniel P. Kessler & Mark B. McClellan, 2000. "Is Hospital Competition Socially Wasteful?," The Quarterly Journal of Economics, Oxford University Press, vol. 115(2), pages 577-615.
    3. Avner Shaked & John Sutton, 1982. "Relaxing Price Competition Through Product Differentiation," Review of Economic Studies, Oxford University Press, vol. 49(1), pages 3-13.
    4. Simon P. Anderson & André de Palma, 2001. "Product Diversity in Asymmetric Oligopoly: Is the Quality of Consumer Goods too Low?," Journal of Industrial Economics, Wiley Blackwell, vol. 49(2), pages 113-135, June.
    5. Steven T. Berry & Joel Waldfogel, 1999. "Free Entry and Social Inefficiency in Radio Broadcasting," RAND Journal of Economics, The RAND Corporation, vol. 30(3), pages 397-420, Autumn.
    6. Capps, Cory & Dranove, David & Satterthwaite, Mark, 2003. "Competition and Market Power in Option Demand Markets," RAND Journal of Economics, The RAND Corporation, vol. 34(4), pages 737-763, Winter.
    7. Jaskold Gabszewicz, J. & Thisse, J. -F., 1980. "Entry (and exit) in a differentiated industry," Journal of Economic Theory, Elsevier, vol. 22(2), pages 327-338, April.
    8. Acharyya, Rajat, 1998. "Monopoly and product quality: Separating or pooling menu?," Economics Letters, Elsevier, vol. 61(2), pages 187-194, November.
    9. Daniel P. Kessler & Mark B. McClellan, 2002. "The Effects of Hospital Ownership on Medical Productivity," RAND Journal of Economics, The RAND Corporation, vol. 33(3), pages 488-506, Autumn.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Daniel P. Kessler & Jeffrey J. Geppert, 2005. "The Effects of Competition on Variation in the Quality and Cost of Medical Care," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 14(3), pages 575-589, September.
    2. Cellini, Roberto & Siciliani, Luigi & Straume, Odd Rune, 2018. "A dynamic model of quality competition with endogenous prices," Journal of Economic Dynamics and Control, Elsevier, vol. 94(C), pages 190-206.
    3. Brekke, Kurt R. & Siciliani, Luigi & Straume, Odd Rune, 2010. "Price and quality in spatial competition," Regional Science and Urban Economics, Elsevier, vol. 40(6), pages 471-480, November.
    4. Gulati, Namrata & Ray, Tridip, 2016. "Inequality, neighbourhoods and welfare of the poor," Journal of Development Economics, Elsevier, vol. 122(C), pages 214-228.
    5. Laurent Gobillon & Carine Milcent, 2013. "Spatial disparities in hospital performance," Journal of Economic Geography, Oxford University Press, vol. 13(6), pages 1013-1040, November.
    6. Martin Gaynor & Kate Ho & Robert J. Town, 2015. "The Industrial Organization of Health-Care Markets," Journal of Economic Literature, American Economic Association, vol. 53(2), pages 235-284, June.
    7. Dana Goldman & John A. Romley, 2008. "Hospitals As Hotels: The Role of Patient Amenities in Hospital Demand," NBER Working Papers 14619, National Bureau of Economic Research, Inc.
    8. Namrata Gulati & Tridip Ray, 2011. "Inequality, neighbourhoods and welfare of the poor," Discussion Papers 11-07, Indian Statistical Institute, Delhi.
    9. Gaynor, Martin & Town, Robert J., 2011. "Competition in Health Care Markets," Handbook of Health Economics, in: Mark V. Pauly & Thomas G. Mcguire & Pedro P. Barros (ed.), Handbook of Health Economics, volume 2, chapter 0, pages 499-637, Elsevier.
    10. Chou, Shin-Yi & Deily, Mary E. & Li, Suhui & Lu, Yi, 2014. "Competition and the impact of online hospital report cards," Journal of Health Economics, Elsevier, vol. 34(C), pages 42-58.
    11. Pan, Jay & Qin, Xuezheng & Li, Qian & Messina, Joseph P. & Delamater, Paul L., 2015. "Does hospital competition improve health care delivery in China?," China Economic Review, Elsevier, vol. 33(C), pages 179-199.
    12. Badi H. Baltagi & Yin-Fang Yen, 2014. "Hospital Treatment Rates and Spillover Effects: Does Ownership Matter?," CESifo Working Paper Series 4664, CESifo.
    13. L. Lambertini & P. Tedeschi, 2003. "Sequential Entry in a Vertically Differentiated Duopoly," Working Papers 492, Dipartimento Scienze Economiche, Universita' di Bologna.
    14. Martin Gaynor, "undated". "What Do We Know About Competition and Quality in Health Care Markets?," GSIA Working Papers 2006-E62, Carnegie Mellon University, Tepper School of Business.
    15. Corchón Luis Carlos & Zudenkova Galina, 2013. "The Welfare Effects of Location and Quality in Oligopoly," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 13(2), pages 1143-1178, July.
    16. Brekke, Kurt R. & Cellini, Roberto & Siciliani, Luigi & Straume, Odd Rune, 2010. "Competition and quality in health care markets: A differential-game approach," Journal of Health Economics, Elsevier, vol. 29(4), pages 508-523, July.
    17. Kurt R. Brekke & Chiara Canta & Luigi Siciliani & Odd Rune Straume, 2018. "Hospital Competition in the National Health Service: Evidence from a Patient Choice Reform," NIPE Working Papers 19/2018, NIPE - Universidade do Minho.
    18. Jean Gabszewicz & Ornella Tarola, 2012. "Product innovation and firms’ ownership," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 21(4), pages 323-343, April.
    19. Carol Propper & Deborah Wilson & Simon Burgess, 2005. "Extending Choice In English Health Care: The implications of the economic evidence," The Centre for Market and Public Organisation 05/133, The Centre for Market and Public Organisation, University of Bristol, UK.
    20. Brekke, Kurt R. & Konigbauer, Ingrid & Straume, Odd Rune, 2007. "Reference pricing of pharmaceuticals," Journal of Health Economics, Elsevier, vol. 26(3), pages 613-642, May.

    More about this item

    JEL classification:

    • I1 - Health, Education, and Welfare - - Health

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:11226. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.