Hospital Market Competition Impact on Hospital Quality – Evidence from Hospital Quality Rating

Recent wave of merger, acquisition and hospital closure restructured the hospital market competition. It is important to examine how hospital market competition affects healthcare service quality. Our study addresses this topic and contributes to existing literature in several ways. First, different from conventional quality measures such as the mortality rate, a comprehensive star rating encompassing 7 quality aspects is used. The method is developed by Center for Medicare and Medicaid Services (CMS) and released in 2016. Second, healthcare quality ratings and variations are examined in different Metropolitan Statistical Areas (MSAs), which aims to evaluate the hospital market competition impact on healthcare services disparity. Controlling for covariates commonly used in existing literature, our preliminary study confirms the finding that hospital market competition is positively related to hospital overall quality rating. In MSAs with more intensive hospital market competition, patients get higher quality of care with less variation.

The study is based upon two data sets. Hospital Compare by CMS provides more than 100 healthcare quality measures on patient mortality, safety of care, readmission, patient experience, effectiveness of care, timeliness of care, and efficient use of medical imaging. In 2016, CMS released the overall hospital quality star rating encompassing these aspects for the first time. The overall star rating on hospital quality is used as the dependent variable in various models. Control variables are generated from the Medicare Cost Report data. In addition, metropolitan statistical areas (MSAs) from the United States Census Bureau are used to differentiate geographic areas.

The current findings are results of cross-section regressions using hospital quality ratings as the dependent variable and Herfindahl-Hirschman index (HHI) as a major predictor controlling for commonly used hospital characteristics such as rural/urban, not-for-profit/for-profit, and teaching status. In addition, size, case-mix index, payer-mix, and financial health are also included as controls. For MSAs regional level regression, the mean and standard deviation of hospital ratings in an MSA are used as dependent variables, which shed some light on disparities of hospital quality. Controls include demographic covariates such as income, health status, and insurance coverage, etc.

We are currently examining a series of further studies on:

• Introducing price or charge as an endogenous covariate for hospitals with more commercial payers;
• Examine different aspects of healthcare service quality separately as dependent variables;
• Replicating the star rating algorithm developed by CMS for historical years and develop panel regression considering the endogeneity of hospital competition HHI;