The Effect of Competition on Quality and Cost in Pennsylvania Health Care
Matthew Horne, Shin-yi Chou
Department of Economics
Abstract
The pervasive and intuitive maxim of economics is that high levels of competition is Pareto Optimal. And although this is the case under many market structures, the effects of competition within health care service markets is unclear and ambiguous. Health services markets are special as a result of their peculiar structure. The products are differentiated; there exists imperfect information; there are a large number of nonprofit hospitals; and the market is regulated. As such, this paper sets out to test the impact that competition has had on the quality of services for Acute Myocardial Infarction in Pennsylvania. In 1998 the Pennsylvania Health Care Cost Containment Council (PHC4) began publishing "report cards", detailing mortality rates as a result of Coronary Artery Graft Bypass Surgery (CABG) for all Pennsylvania hospitals and surgeons. This increase in publically available information provides a natural experiment. The theoretical implications of the publication is varied depending on how one defines competition. Quality, in terms of input measures, should be improved more in a more competitive market after report card online publication. Quality, in terms of health outcomes, may or may not be improved. The prediction is complicated by the possibility of medical arms race (MAR). Our findings support these theoretical implications in that competition unambigously has a positive impact on input quality, while we find that competition has a negative relationship with output quality.
Bio:
Matthew Horne is a Senior who will be graduating in May. He is plans to attend a Doctoral program for Economics in the Fall.
