Does Competition Kill? Hospital Quality and Competition

We seek to estimate the effects of competition for both Medicare and HMO patients on the quality decisions of hospitals in Southern California. We find that increases in the degree of competition for HMO patients decrease risk-adjusted hospital mortality rates. Conversely, increases in competition for Medicare enrollees are associated with increases in risk-adjusted mortality rates for hospitals. In conjunction with previous research, our estimates indicate that increasing competition for HMO patients appears to reduce price and save lives and hence appears to be welfare improving. However, increases in competition for Medicare appears to reduce quality and perhaps reduces welfare. The net effect of a given merger on hospital quality will depend on the geographic distribution of different payer groups. _________________________ We have received helpful comments from Tom Buchmueller, Vivian Ho, Tom Holmes, Rajeev Tyagi and seminar participants at the University of California, Irvine. We acknowledge research support from the University of Minnesota Supercomputing Institute.