IDEAS home Printed from
   My bibliography  Save this paper

Competition, Payer, and Hospital Quality


  • Gautam Gowrisankaran
  • Robert Town


The objective of this study is to estimate the effects of competition for both Medicare and HMO patients on the quality decisions of hospitals in Southern California. We use discharge data from the State of California for the period 1989-1993. The outcome variables are the risk-adjusted hospital mortality rates for pneumonia (estimated by the authors) and acute myocardial infarction (reported by the state of California). Measures of competition are constructed for each hospital and payer type. The competition measures are formulated to mitigate the possibility of endogeneity bias. The study finds that increases in the degree of competition for HMO patients decrease risk-adjusted hospital mortality rates. Conversely, increases in competition for Medicare enrollees are associated with increases in risk-adjusted mortality rates for hospitals. In conjunction with previous research, 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 appear to reduce quality and may reduce welfare. Increasing competition has little net effect on hospital quality for our sample.

Suggested Citation

  • Gautam Gowrisankaran & Robert Town, 2002. "Competition, Payer, and Hospital Quality," NBER Working Papers 9206, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:9206
    Note: HC PR

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Gaynor, Martin & Vogt, William B., 2000. "Antitrust and competition in health care markets," Handbook of Health Economics,in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 27, pages 1405-1487 Elsevier.
    2. Motta, Massimo, 1993. "Endogenous Quality Choice: Price vs. Quantity Competition," Journal of Industrial Economics, Wiley Blackwell, vol. 41(2), pages 113-131, June.
    3. 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.
    4. Ho, Vivian & Hamilton, Barton H., 2000. "Hospital mergers and acquisitions: does market consolidation harm patients?," Journal of Health Economics, Elsevier, vol. 19(5), pages 767-791, September.
    5. K. Sridhar Moorthy, 1988. "Product and Price Competition in a Duopoly," Marketing Science, INFORMS, vol. 7(2), pages 141-168.
    6. Gowrisankaran, Gautam & Town, Robert J., 1999. "Estimating the quality of care in hospitals using instrumental variables," Journal of Health Economics, Elsevier, vol. 18(6), pages 747-767, December.
    7. Daniel Kessler & Mark McClellan, 1999. "Designing Hospital Antitrust Policy to Promote Social Welfare," NBER Working Papers 6897, National Bureau of Economic Research, Inc.
    8. Chernew, Michael & Gowrisankaran, Gautam & Fendrick, A. Mark, 2002. "Payer type and the returns to bypass surgery: evidence from hospital entry behavior," Journal of Health Economics, Elsevier, vol. 21(3), pages 451-474, May.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

      More about this item

      JEL classification:

      • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
      • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

      NEP fields

      This paper has been announced in the following NEP Reports:


      Access and download statistics


      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:9206. 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: .

      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.