Quality Transparency and Healthcare Competition

86 Pages Posted: 31 Jan 2022 Last revised: 21 Feb 2023

See all articles by John D. Kepler

John D. Kepler

Stanford Graduate School of Business

Valeri V. Nikolaev

University of Chicago Booth School of Business

Nicholas Scott-Hearn

University of Chicago - Booth School of Business

Christopher R. Stewart

University of Chicago - Booth School of Business

Date Written: February 16, 2023

Abstract

Transparency about the quality of goods and services offered by firms improves consumer decisions; however, it also informs competitors. We study the effect of an increase in information about the quality of healthcare services on competition and, subsequently, on the quality of care. In 2012, healthcare regulators began measuring and publicly disclosing information about the healthcare quality of all US dialysis facilities. Using a difference-in-differences design, as well as an instrumental variables approach based on emergency room referrals, we show that improved quality transparency (i) prompts new entry by competitors nearby low-quality incumbents, and (ii) increases the sensitivity of demand to quality, reflected in a reduction in patient referrals to lower-quality incumbents. We also find that enhanced transparency improves the incumbents' quality of care via its effect on competition evidenced by reduced hospitalizations and increased investments in skilled labor. Overall, we conclude that disclosure policies can be an effective tool to stimulate healthcare competition and discipline quality.

Note:
Funding Information: We gratefully acknowledge financial support from the University of Chicago Booth School of Business and the Stanford Graduate School of Business, as well as excellent support from the Chicago Booth Healthcare Initiative.

Declaration of Interests: None to declare.

Keywords: Healthcare, dialysis treatment, competition, transparency

JEL Classification: D83, G14, L14, M41

Suggested Citation

Kepler, John and Nikolaev, Valeri V. and Scott-Hearn, Nicholas and Stewart, Christopher R., Quality Transparency and Healthcare Competition (February 16, 2023). Available at SSRN: https://ssrn.com/abstract=3963418 or http://dx.doi.org/10.2139/ssrn.3963418

John Kepler (Contact Author)

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

Valeri V. Nikolaev

University of Chicago Booth School of Business ( email )

5807 South Woodlawn Avenue
Chicago, IL 60637
United States

HOME PAGE: http://faculty.chicagobooth.edu/valeri.nikolaev/index.html

Nicholas Scott-Hearn

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Christopher R. Stewart

University of Chicago - Booth School of Business ( email )

5807 S Woodlawn Ave
Chicago, IL 60637
United States

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