Competition and Incentives in LTC Markets
With asymmetric information and regulated prices, competition in health care markets often leads to surprising and unintended consequences. This session includes three papers that examine the interaction of competition and incentives on quality and gaming behaviors in the long-term care industries. Lu and Wedig lead the session with their paper on the non-monotonic (U-shaped) relationship between competition and nursing home quality. The authors provide empirical evidence demonstrating that quality is higher in markets with high-or low-level competition, but quality deteriorates in markets with intermediate-level competition. Next, Hirth and Huang ask how the managerial ownership interacts with product market structures. Using nursing home data, they find that managerial ownership has ambiguous welfare implications and it amplifies the effects of for-profit share on quality. Managerial ownership improves quality in markets with large nonprofit share, but worsens quality in markets with large for-profit share. The session concludes with Kim et al. examining the gaming behaviors in the home health industry. These authors find that, when faced with more intense competitive and financial pressures, home health agencies are more likely to game the reimbursement systems. This gaming behavior is most pronounced among agencies not vertically integrated. These three papers provide important managerial and policy implications about the entry regulation and incentive design in health care markets.