Working Paper: NBER ID: w29809
Authors: Zack Cooper; Joseph J. Doyle Jr.; John A. Graves; Jonathan Gruber
Abstract: Hospitals in the US compete on price and quality. There are fears that because of general idiosyncrasies in the market for health care services, competition between hospitals will not generate efficient prices. These concerns have led to widespread calls for price regulation in the $1.3 trillion hospital sector. A clear prediction from the growing literature on hospital insurer bargaining is that more appealing hospitals should be able to negotiate higher prices. Following this prediction, we introduce a simple test of the extent to which the market for hospital care in the US is functioning: analyzing whether high priced hospitals have higher quality, controlling for patient selection. We find that being admitted to a hospital with two standard deviations higher prices raises spending on patients by 53% and lowers their mortality by 1 percentage point (37%). However, the relationship between higher prices and lower mortality is only present at hospitals in less concentrated markets. Receiving care from expensive hospitals in concentrated markets increases spending but has no detectable effect on mortality.
Keywords: hospital quality; hospital prices; health care competition; mortality rates; hospital market concentration
JEL Codes: I10; I11; I13; I18
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Hospital Prices (P22) | Patient Spending (H51) |
| Hospital Prices (P22) | Patient Mortality (I12) |
| High Prices in Less Concentrated Markets (D49) | In-Hospital Mortality (I12) |
| High Prices (D49) | Quality of Care (I11) |
| Hospital Prices (P22) | Market Power (L11) |
| High Prices (D49) | Share of Physicians from Top Medical Schools (I23) |