Unbiased Analysis of Today's Healthcare Issues

Does competition improve health care quality?

Written By: Jason Shafrin - Jan• 30•09

If economists decided to re-write the Ten Commandments, “Thou shalt love Competition” may make the list.  However, does competition always improve quality?  Even in the case of health care?

A paper by Scanlon et al. (2008) “…found no evidence of a strong and consistent relationship between HMO competition (measured either by the HHI or the number of HMOs) and plans’ scores on the CAHPS and HEDIS measures of health plan performance.”  The authors did find, however, that increased competition can lead to lower health premiums.  

Because price is easily observable and quality is not, it seems sensible that increased competition will push down prices, but may not improve quality.  Further, more competition means more fragmented medical care, which can increase the cost to provide quality health care services. 

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3 Comments

  1. Ting says:

    When a customer uses “price” as the main parameter to make a purchse decision, most of time it means 1) this purchase is not critical for the decision maker or 2) he does concern the quality but lacks for information and price is the only information he has. Yes, the fact shows compeition did not improve health care quality but I believe it will as long as we have the competition in the right way, the right level.

  2. Price is *not* easily observable for patients in today’s model, though. And PPO networks and many other complications mean that patients are not usually easily free to change doctors or hospital when quality has decreased The only way to have competition (or any other market force) actually lower price or increase quality is to but the dollars back in the hands of the actual consumer via mechanisms like being self pay, HSAs, HDHPs and even privately purchased insurance. When health care costs are largely a function of an agreement between your boss and a third party payer, neither the doctor nor the patient (those with easiest abiility to make choices the improve quality) have any direct control on the price and delivery because they become victims of the system.

    So the system should change and competition at that point will work to drive up quality and drive down price.

  3. […] Health Economist points to a paper that found increased competition between HMOs will push down health care prices, “but may not improve quality.” […]

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