Working Paper: NBER ID: w27440
Authors: Craig Garthwaite; Christopher Ody; Amanda Starc
Abstract: High and increasing hospital prices have led to calls for price regulation. If prices are high because of consolidation, regulating prices could enhance welfare. However, high prices could also reflect increased willingness to pay by privately insured consumers for clinical and non-clinical quality. If so, regulating prices could reduce quality. We present a model of strategic quality choice where hospitals make quality investments to increase private revenue. We confirm the model's predictions across numerous quality measures including patient satisfaction, hospital processes, risk adjusted mortality, the revealed preferences of current Medicare patients, technology adoption, physician quality, and ED wait times.
Keywords: hospital pricing; quality investments; healthcare policy; negotiated prices
JEL Codes: I11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| higher negotiated prices (P22) | hospitals invest more in quality (I11) |
| hospitals invest more in quality (I11) | higher revenue from private payers (I13) |
| higher share of privately insured patients (I13) | hospitals invest more in quality (I11) |
| hospitals invest more in quality (I11) | reduces Medicare margins (H51) |
| regulating prices (E64) | hospitals reduce quality investments (I14) |
| payer mix influences (H51) | financial viability of enhancing quality (L15) |
| higher share of potential privately insured patients (I13) | higher quality outcomes (L15) |