How Costly is Hospital Quality? A Revealed‐Preference Approach

31 Pages Posted: 20 Dec 2011

See all articles by John Romley

John Romley

Price School of Public Policy, University of Southern California; University of Southern California - Schaeffer Center for Health Policy and Economics

Dana P. Goldman

RAND Corporation; National Bureau of Economic Research (NBER)

Date Written: December 2011

Abstract

We analyze the cost of quality improvement in hospitals, dealing with two challenges. Hospital quality is multidimensional and hard to measure, while unobserved productivity may influence quality supply. We infer the quality of hospitals in Los Angeles from patient choices. We then incorporate ‘revealed quality’ into a cost function, instrumenting with hospital demand. We find that revealed quality differentiates hospitals, but is not strongly correlated with clinical quality. Revealed quality is quite costly, and tends to increase with hospital productivity. Thus, non‐clinical aspects of the hospital experience (perhaps including patient amenities) play important roles in hospital demand, competition, and costs.

Suggested Citation

Romley, John and Goldman, Dana P., How Costly is Hospital Quality? A Revealed‐Preference Approach (December 2011). Available at SSRN: https://ssrn.com/abstract=1974819 or http://dx.doi.org/10.1111/j.1467-6451.2011.00468.x

John Romley (Contact Author)

Price School of Public Policy, University of Southern California ( email )

USC Schaeffer Center, Verna & Peter Dauterive Hall
635 Downey Way
Los Angeles, CA CA 90089-3333
United States

University of Southern California - Schaeffer Center for Health Policy and Economics ( email )

635 Downey Way
Los Angeles, CA 90089-3333
United States

Dana P. Goldman

RAND Corporation ( email )

P.O. Box 2138
Santa Monica, CA 90407-2138
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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