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How Costly is Hospital Quality? A Revealed‐Preference Approach

Year: 2011

Type: article

Abstract: We analyze the cost of quality improvement in hospitals, dealing with two challenges. Hospital quality is multidimensional and hard to measure, while unobserved productivity may influence quality supply. We infer the quality of hospitals in Los Angeles from patient choices. We then incorporate ‘revealed quality’ into a cost function, instrumenting with hospital demand. We find that revealed quality differentiates hospitals, but is not strongly correlated with clinical quality. Revealed quality is quite costly, and tends to increase with hospital productivity. Thus, non-clinical aspects of the hospital experience (perhaps including patient amenities) play important roles in hospital demand, competition, and costs.

Source: Journal of Industrial Economics

DOI: 10.1111/j.1467-6451.2011.00468.x

Authors: John A. Romley, Dana P. Goldman

Institutions: University of Southern California, RAND Corporation

Language: English

Topic: Healthcare Policy and Management

Subfield: Economics and Econometrics

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

Funder: National Institute on Aging

Awards: Quality and Costs in Hospitals: What Can We Learn from Medicare Patients?, USC-Yale Roybal Center for Behavioral Interventions in Aging