The Economic Impact of Healthcare Quality

We study the costs of hospitalizations on patients’ earnings and labor supply. We evaluate the quality of treatment based on its ability to mitigate the labor market consequences of a given diagnosis, using the universe of hospital admissions in Denmark and full-population tax data. We propose a new measure of hospital quality, the "Adjusted Earning Losses" (AEL), and find a 4 percentage points difference in lost earnings between the best and worst large Danish hospital, all else equal. We show AEL contains significant additional information with respect to traditional measures and it does not suffer from worse selection issues. We also document a large decline in the labor cost of hospitalizations over time, with large variations across diseases. We find that the average post-hospitalization reduction in labor earnings has declined by 25% (50%) on the intensive (extensive) margin between 1998 and 2012. (Joint with Anne-Line Helso and Adelina Wang)