Do Competitors’ Quality Improvements Improve Own Quality? An Empirical Test of Florida Hospitals

For nearly two decades, there has been heightened awareness and concern about the safety and quality of inpatient care in U.S. hospitals. Efforts to improve these conditions have stemmed mainly from non-market policies and regulation, as research has come to no consensus on the relationship between hospital market competition and quality. This article extends this line of research, using a game-theoretic framework and unique panel of Florida hospitals, to uniquely examine the relationship between hospital competition and quality investment. Specifically, we look at how the quality of competitors, measured by a composite of Agency for Healthcare Research and Quality patient safety (adverse) events, is related to several measures of hospital-quality investment. We find the quality of competitors leads, in some cases, to an increase in quality investment, but with effects that are quite small (estimated elasticities typically less than 0.05). We also generally find that an increase in the number of competitors leads to a decrease in quality investment. Thus, while it would seem the rise of non-market policies from public payers to promote quality in U.S. hospitals has been warranted, we also conclude that, on the margin, hospitals may compete in fairly sophisticated and strategic ways