Effects Of Market Competition On Health Care Payment And Quality

The implication of competition in health care have been the subject of theoretical and empirical debate.On one side has been work that finds that competition among hospitals reduces payment and improves quality.On the other side has been work that finds that competition leads hospitals to engage in "medical arm race" and leads to higher cost.We first use a theoretical model to analysis the impact of market competition on hospitals’ investment,price and quality.The model predicts that more competition causes hospitals to increase investment or reduce price when information is asymmetric.When hospitals choose to increase investment,hospitals’price in equilibrium will increase,but the effect on quality is uncertain.When hospitals choose to reduce price,hospitals’price in equilibrium will decrease,quality will decrease or remain unchanged.In empirical part,we evaluate the effect of competition by using a panel of 13 cities followed from 2008 to 2016.Using hospital-level data and fixed-effect model,we find that more competition cause hospitals to increase price,but does not improve quality.When new hospitals enter market,the existing hospitals tend to increase investment of medical equipment and hospital bed.We estimate the model separately by different level and type hospitals,and find that the effect of competition is higher for grade-one hospitals and public hospitals.Finally,we find evidence showing that an increase of expenditure is due to a raise of hospitalization expenses and admission rate.When hospitals face more competition,they tend to increase investment and shift health care costs to their patients.