The Effects of Competition on Variation in the Quality and Cost of Medical Care

22 Pages Posted: 4 May 2005 Last revised: 5 Sep 2010

See all articles by Daniel P. Kessler

Daniel P. Kessler

Stanford Graduate School of Business; National Bureau of Economic Research (NBER)

Jeffrey J. Geppert

SPHERE Institute

Date Written: March 2005

Abstract

We estimate the effects of hospital competition on the level of and the variation in quality of care and hospital expenditures for elderly Medicare beneficiaries with heart attack. We compare competition's effects on more-severely ill patients, whom we assume value quality more highly, to the effects on less-severely ill, low-valuation patients. We find that low-valuation patients in less-competitive markets receive more intensive treatment than in more-competitive markets, but have statistically similar health outcomes. In contrast, high-valuation patients in less-competitive markets receive less intensive treatment than in more-competitive markets, and have significantly worse health outcomes. Since this competition-induced increase in variation in expenditures is, on net, expenditure-decreasing and outcome-beneficial, we conclude that it is welfare-enhancing. These findings are inconsistent with conventional models of vertical differentiation, although they can be accommodated by more recent models.

Suggested Citation

Kessler, Daniel Philip and Geppert, Jeffrey J., The Effects of Competition on Variation in the Quality and Cost of Medical Care (March 2005). NBER Working Paper No. w11226. Available at SSRN: https://ssrn.com/abstract=693087

Daniel Philip Kessler (Contact Author)

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
650-723-4492 (Phone)
650-725-6152 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Jeffrey J. Geppert

SPHERE Institute ( email )

No Address Available

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