Quality Transparency and Healthcare Competition
85 Pages Posted: 31 Jan 2022 Last revised: 10 Jan 2024
Date Written: January 8, 2024
Abstract
Transparency about the quality of goods and services offered by firms improves consumer decisions; however, it also informs competitors' strategies. We study the effect of increased transparency about healthcare service quality on the competitive dynamics among healthcare providers, focusing on the US dialysis sector. Following the 2012 mandate for public disclosure of dialysis quality data, we observe an increase in the sensitivity of consumer demand to quality. It is manifested by the immediate reduction in patient referrals to lower-quality incumbents. We use a difference-in-differences design and also exploit variation in quality induced by staggered changes in measurement methodology to show that improved quality transparency attracts new competitors into markets with historically low quality, particularly in an environment with lower barriers to entry. The enhanced transparency leads to improvements in incumbents' quality of care, as evidenced by decreased hospitalizations and increased investments in skilled labor. We find no evidence of facility managers "gaming" their quality scores. Our findings underscore the efficacy of disclosure policies in fostering competition and improving healthcare quality and quantify these effects in the context of the dialysis sector.
Note:
Funding Information: We gratefully acknowledge financial support from the University of Chicago Booth School of Business and the Stanford Graduate School of Business, as well as excellent support from the Chicago Booth Healthcare Initiative.
Declaration of Interests: None to declare.
Keywords: Healthcare, dialysis treatment, competition, transparency
JEL Classification: D83, G14, L14, M41
Suggested Citation: Suggested Citation