Consolidation, specialization and quality in the US hospital market

As healthcare systems globally have shifted from a general focus on costs to a broader perspective of value, debates about healthcare quality have become more relevant. From a welfare perspective, a costly healthcare service or provider may be beneficial, so long as the price is justified by the corresponding quality levels. This dissertation examines the impact of competition and specialization on quality in the US hospital market. The first chapter serves as an introduction to the topic of using quality metrics to evaluate hospital performance. It highlights the different approaches to measuring healthcare quality, assesses how theoretical models of the hospital as an economic entity have identified drivers of quality, and surveys the existing empirical literature for a concordance of quality metrics used in hospital evaluations thus far. It finds that the theoretical models have yet to fully incorporate multidimensional aspects of quality, and there is no consistent standard for how hospital quality is assessed in empirical studies. Thus, there remain opportunities to expand the field of hospital economics. Inconsistency in incorporating the multidimensionality of quality may lead to heterogeneous policy evaluations. Building on the basic theoretical models as well as brief empirical survey from the first chapter, the second chapter looks to assess the impact of competition with ambulatory surgery centers (ASCs) on hospital quality. A combination of clinical advancements, patient desire for convenience and financial incentives for lower-acuity care has led to a shift from inpatient to outpatient care in the healthcare industry. This shift has led to the emergence of new types of specialized outpatient providers operating independently from hospitals, such as ASCs. General hospitals usually provide the same outpatient procedures as ASCs, but they do so only as a subset of their scope of services. This chapter looks at the impact of these new competitors on hospital quality. The chapter finds that increased competition with ASCs leads to a reduction in hospital patient experience scores, lower satisfaction with hospital outpatient department services, and longer emergency department waiting times. However, the effect sizes are very small. The third chapter examines the impact of contracting out environmental services (ES) on quality in hospitals. Outsourcing services has become an increasingly popular strategy for hospitals struggling to contain costs while enhancing the value of the care they provide. One of the earliest services to be outsourced was cleaning, also known as ES. ES is an interesting service to study because of its strategic relevance to hospital operations and because it exhibits both clinical and non-clinical characteristics. Unfortunately, due to the presence of incomplete contracts, hospitals who outsource ES might see poorer quality outcomes than hospitals who self-operate. Analyzing short-term acute care hospitals in the US from 2014 to 2018, this chapter finds that outsourcing ES does in fact lead to poorer patient perception of cleanliness as well as higher C.diff infections, and this pattern is generally consistent across different ownership types. This suggests that the existing contracting arrangements may be insufficient for addressing the underlying goal of improving value provided by US hospitals.