COMPETITION AND QUALITY OUTCOMES IN THE HEALTH CARE MARKET: A BILATERAL ANALYSIS

Abstract

Micro-economic theory suggests both insurance market concentration and hospital market concentration may affect outcomes such as insurance premium and quality of care. Moreover, as concentration in the insurance market and hospital market may interact, it is impossible for economic theory to sign the impact. Using Healthcare Cost and Utilization Project (HCUP) 2007 data this paper addresses the question empirically. Insurance and hospital market concentrations are measured by Herfindahl-Hirschman Index (HHI) and quality of care is measured by length of inpatient stay in days and probability of dying during hospitalization. To address the potential endogeneity problem, lagged values of both markets' HHIs are used as instrumental variables. The results of regressions on length of stay show that, generally, increases of both insurance and hospital market concentration erode the quality of care, while the exact impact of the structure of one market depends on the structure of the other. Study finds a positive correlation between monopoly-monopsony confrontation and quality of care in extreme cases but outcomes experienced by patients in such market are worse than outcomes experienced by patients in competitive markets. Results about inpatient mobility are mixed. These findings suggest that, anti-competition trends in health care market should be closely monitored and regulated.