Does the Influence of Competition and Compensation on Hospital Quality Vary with Ownership Type?

Abstract

Recently, patients, insurers, and regulators have increasingly focused on hospital quality (the inverse of patient mortality) in the U.S. Using California hospital data from 2006 through 2020, we find evidence that the effects of compensation and competition on hospital quality differ by ownership type. Executive compensation is positively associated with quality in for-profit hospitals but is not associated with that of nonprofit hospitals, suggesting for-profit hospitals are more likely to use higher levels of compensation to attract managers with higher ability whereas the utility function for nonprofit managers may be multi-dimensional. Looking within the nonprofit hospital group, we observe that competition is more positively associated with quality for religious nonprofits relative to secular nonprofits, suggesting that competition provides more monitoring for religious hospitals. Taken together, our results suggest that the drivers of quality vary across hospitals in ways consistent with differences in constraints and objectives across ownership types. Our findings are important for regulators seeking to incentivize higher quality hospital care. For example, Medicare has incorporated quality measures into its new hospital reimbursement scheme (VBP or Value Based Purchasing) to incentivize quality, our results suggest that regulators should consider differences across ownership types when evaluating the best ways to incentivize hospital quality.

Note:
Funding Information: This is research conducted with public data. No funding was ever provided.

Conflict of Interests: There’s no competing interest.

Keywords: Quality performance, competition, compensation, hospital quality monitoring

JEL Classification: I11, L21, L33, M11, M12