Who Wins When Hospitals Become More Efficient? Evidence from Scope-of-Practice Laws

The high cost of healthcare delivery is a major driver of high medical spending in the United States. Recognizing this issue, policymakers have tried to provide incentives for medical providers to reduce their costs and operate more efficiently. While these efforts may increase the efficiency of healthcare delivery, providers or insurers may not pass on these benefits to consumers if they have sufficient market power. To shed light on how cost savings are passed on to consumers I use plausibly exogenous variation in the strictness of Scope-of-Practice laws for Advanced Practice Registered Nurses (APRNs). SOP laws restrict the ability of APRNs to practice independently. When states relax these laws, hospitals are able to reduce their costs by substituting physicians for lower-cost APRNs. I estimate the effect of changing SOP laws on hospital labor costs at the department-level, using administrative data from the Centers for Medicare and Medicaid Services (CMS). I then link the cost data to the universe of inpatient records from 23 states during 2013-2015 to estimate the extent to which cost reductions are passed through to consumers via increases in quality or decrease in price. Finally, I investigate how the effects vary by payer type, market structure, and patient demographics to further investigate the role that market power plays in determining cost pass-through.