Endogenous Quality Investments in the U.S. Hospital Market

36 Pages Posted: 29 Jun 2020 Last revised: 24 Jun 2023

See all articles by Craig Garthwaite

Craig Garthwaite

Northwestern University; National Bureau of Economic Research (NBER)

Christopher Ody

Northwestern University

Amanda Starc

Kellogg School of Management, Northweste

Date Written: June 2020

Abstract

High and increasing hospital prices have led to calls for price regulation. If prices are high because of consolidation, regulating prices could enhance welfare. However, high prices could also reflect increased willingness to pay by privately insured consumers for clinical and non-clinical quality. If so, regulating prices could reduce quality. We present a model of strategic quality choice where hospitals make quality investments to increase private revenue. We confirm the model's predictions across numerous quality measures including patient satisfaction, hospital processes, risk adjusted mortality, the revealed preferences of current Medicare patients, technology adoption, physician quality, and ED wait times.

Suggested Citation

Garthwaite, Craig and Ody, Christopher and Starc, Amanda, Endogenous Quality Investments in the U.S. Hospital Market (June 2020). NBER Working Paper No. w27440, Available at SSRN: https://ssrn.com/abstract=3637741

Craig Garthwaite (Contact Author)

Northwestern University ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Christopher Ody

Northwestern University

2001 Sheridan Road
Evanston, IL 60208
United States

Amanda Starc

Kellogg School of Management, Northweste ( email )

2001 Sheridan Road
Evanston, IL 60208
United States
3303382067 (Phone)

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