Quality Transparency and Healthcare Competition

73 Pages Posted: 31 Jan 2022 Last revised: 30 Mar 2022

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: March 29, 2022

Abstract

Transparency of quality in the healthcare sector primarily aims to facilitate patients' care decisions, however, it also provides useful information to competing healthcare providers. We study how competitors respond to increased transparency about rivals' quality by exploiting a regulatory change that initiated disclosure about the quality of all kidney dialysis facilities in the United States. We show that competitors are 27% more likely to open new facilities near low-quality incumbents after the transparency program is implemented. We also show that the effect of transparency on competition is restricted to states without licensing requirements that create barriers to entry. Evidence from patient referrals indicates that the new transparency regime increases the sensitivity of demand to quality and that the increase in competition is costly to low-quality incumbents, as they lose 31% of their new patient referrals—equivalent to a $3.74 million loss of a facility's annual revenue—to higher-quality entrants. Finally, increased competition from rivals leads to improved patient outcomes by reducing hospitalizations, and incentivizes incumbents' investments in patient care through an immediate increase in nurse practitioners and social workers.

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 (March 29, 2022). 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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