Do Report Cards Tell Consumers Anything They Don't Already Know? The Case of Medicare HMOs

The use of government-mandated report cards to diminish uncertainty about the quality of products and services is widespread. However, report cards will have little effect if they simply confirm consumers' prior beliefs. Moreover, documented "responses" to report cards may reflect learning about quality that would have occurred in their absence ("market-based learning"). Using panel data on Medicare HMO market shares between 1994 and 2002, we examine the relationship between enrollment and quality before and after report cards were mailed to 40 million Medicare beneficiaries in 1999 and 2000. We find evidence that consumers learn from both public report cards and market-based sources, with the latter having a larger impact during our study period. Consumers are especially sensitive to both sources of information when the variance in HMO quality is greater. The effect of report cards is driven by beneficiaries' responses to consumer satisfaction scores; other reported quality measures such as the mammography rate did not affect enrollment decisions.

The DVD vs. DIVX Standard War: Empirical Evidence of Vaporware

In this paper, we empirically measure the effect of the DIVX preannouncement in the DVD market. We do this by measuring the effect of potential (incompatible) competition on a network undergoing growth. We find that there are network effects in the DVD market and that the preannouncement of DIVX slowed down the adoption of DVD technology. This suggests that strategic preannouncements can indeed affect the outcome of a standards competition.

Regulatory Exploitation and the Market for Corporate Controls

This paper investigates whether managers who fail to exploit regulatory loopholes are vulnerable to replacement. We use the U.S. hospital industry in 1985-1996 as a case study. A 1988 change in Medicare rules widened a pre-existing loophole in the Medicare payment system, presenting hospitals with an opportunity to increase operating margins by five or more percentage points simply by “upcoding” patients to more lucrative codes. We find that “room to upcode” is a statistically and economically significant predictor of whether a hospital replaces its management with a new team of for-profit managers. We also find that hospitals replacing their management subsequently upcode more than a sample of similar hospitals that did not, as identified by propensity scores.

Patient Admission Patterns and Acquisitions of "Feeder" Hospitals

Large, urban tertiary care hospitals often acquire outlying community hospitals. One possible motivation is to increase referrals. Sophisticated acquirers may even attempt to concentrate additional referrals among more profitable patients. We explore these issues by studying 26 vertical acquisitions in Florida and New York that occurred in the late 1990s, a peak period for such transactions. We compare changes in referrals of patients from target market areas to changes in a matched set of control markets. We find that roughly 30 percent of the vertical acquisitions resulted in a significant increase in referrals to the acquirer. Very few acquisitions were followed by decreases in referrals. When acquisitions did lead to increased referrals, the effect was usually largest for patients with more remunerative insurance and patients undergoing more profitable procedures. However, we find no evidence that hospitals selectively avoided referrals of patients with severe conditions for which costs might exceed reimbursements.Hospitals, Mergers and Acquisitions, Referrals, Patient Selection

Is More Information Better? The Effects of 'Report Cards' on Health Care Providers

Health care report cards - public disclosure of patient health outcomes at the level of the individual physician and/or hospital - may address important informational asymmetries in markets for health care, but they may also give doctors and hospitals incentives to decline to treat more difficult, severely ill patients. Whether report cards are good for patients and for society depends on whether their financial and health benefits outweigh their costs in terms of the quantity, quality, and appropriateness of medical treatment that they induce. Using national data on Medicare patients at risk for cardiac surgery, we find that cardiac surgery report cards in New York and Pennsylvania led both to selection behavior by providers and to improved matching of patients with hospitals. On net, this led to higher levels of resource use and to worse health outcomes, particularly for sicker patients. We conclude that, at least in the short run, these report cards decreased patient and social welfare.

The Returns to Medical Inventions

Medical innovation is perhaps the most important driver of health care spending and quality. Economists have studied pharmaceutical innovation for decades, and their findings have contributed to the debate about optimal Food and Drug Administration policy. Despite their importance to health care spending and value, there is no similar literature to inform an optimal regulation system for novel and valuable medical procedures. In this paper, we begin to fill this gap by documenting the incentives for developing medical procedures and the process through which they are approved for use. Drawing on the work of Sam Peltzman and George Stigler, we argue that the largely ad hoc system of rewards and review for medical procedures may explain the slow pace of innovation, particularly when compared with drug innovation

A Competitive Process for Procuring Health Services: A review of Principles with an Application to Cataract Services

Government agencies employ a variety of mechanisms for securing goods and services from the private sector. These include posting prices, reimbursing for costs, and soliciting competitive bids.  Procurement of healthcare services offers several unique challenges. The supplier can influence the quantity of services provided. It is often difficult to even specify in advance exactly what services are to be purchased. Lastly, quality is difficult to measure.  Healthcare purchasers have deployed a variety of payment mechanisms to cope with these challenges.  We apply the theory of procurement to the case of cataract surgery. We recommend implementing a system that combines a gatekeeper with competitive bidding among operating physicians who must perform all necessary services, including treatment for complications, within a global fee.  We conclude by discussing the strengths and limitations of this proposal

Quality Disclosure and Certification: Theory and Practice

This essay reviews the theoretical and empirical literature on quality disclosure and certification. After comparing quality disclosure with other quality assurance mechanisms and describing a brief history of quality disclosure, we address three key theoretical issues: (i) Why don't sellers voluntarily disclose through a process of "unraveling?" (ii) When should government mandate disclosure? and (iii) Do certifiers necessarily report unbiased and accurate information? We further review empirical evidence on these issues, with a particular focus on healthcare, education, and finance. The empirical review covers quality measurement, the effect of third party disclosure on consumer choice and seller behavior, as well as the economics of certifiers.

The association between asymmetric information, hospital competition and quality of healthcare: evidence from Italy

We study the effect of competition on adverse hospital health outcomes in a context in which information about hospital quality is not publicly available. We use data on patients who were admitted to hospitals in the Lombardy region of Italy. Although risk-adjusted hospital rankings are estimated yearly in this region, such rankings are provided to hospital managers only and are not available to general practitioners or citizens. Hence, patients may choose the hospital where to be admitted on the basis of different criteria such as their geographical closeness to the hospital, local network information and referrals by general practitioners.We first estimate a model of patient hospital choices and include among the determinants a variable capturing social interaction, which represents a proxy for the quality of hospitals perceived by patients. Using patient-predicted choice probabilities, we then construct a set of competition indices and measure their effect on a composite index of mortality and readmission rates that represents, in our settings, hospital quality in terms of adverse health outcomes. Our results show that no association exists between such adverse events and hospital competition. Our finding may be the result of asymmetric information, as well as the difficulty of building good quality health indicators

The Price of Palliative Care: Towards a Complete Accounting of Costs and Benefits

The costs and benefits of hospice and palliative care have recently received attention for many compelling reasons. First, the cost of medical care over a lifetime is largely expended near the end-of-life. The impending demographic bulge of aging baby boomers will only heighten concerns about costs. Second, hospice and palliative care have been offered as potential vehicles for reducing late-in-life spending. Third, palliative care has gained legitimacy as a distinct medical specialty, having as it does a characteristic philosophy, specialized skill sets, and specific service delivery needs. This philosophy of care is consistent with and, to some degree, builds on the philosophy of care that geriatrics also promotes. In this article, currently accepted standards for cost-benefit analysis of health care interventions are outlined, and a framework to evaluate palliative care within these standards is provided. Recent publications on the economic implications of palliative care are reviewed, which are only the ‘‘tip of the iceberg’’ of the potential costs and benefits. Using this framework, the authors offer guidelines for performing comprehensive cost-benefit analyses of palliative care and conclude that many of the issues beneath the surface may be substantial and deserving of closer scrutiny. Methods for gathering relevant cost-benefit information are detailed, along with potential obstacles to implementation. This approach is applicable to palliative care in general, including palliative care for elders