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CEP discussion paper
The hospital as a multi-product firm: the effect of hospital competition on value-added indicators of clinical quality
Matthew Skellern May 2017
Paper No' CEPDP1484:
Full Paper (pdf)

JEL Classification: C21; D21; H42; I11; I18; L1; L15; L32; R12

Tags: health care; hospital competition; price regulation; prospective reimbursement; patient choice; health care quality; vertical product quality; performance measurement; multi-tasking; value added

There is increasing international interest in using Patient Reported Outcome Measures (PROMs) to assess health care provider performance. PROMs are a fundamental advance on existing indicators of health care quality in two respects: they equate outcomes with value added (i.e. health gain) from treatment rather than post-treatment health status, and they allow clinical quality to be measured at the level of the individual medical intervention to a far greater extent than existing failure-based indicators of quality such as mortality or readmissions. Most existing econometric studies of hospital competition and quality equate outcomes with post-treatment health status, and use mortality rates of various kinds as indicators of overall hospital performance, in spite of the fact that mortality is a relatively uncommon outcome in the spheres of hospital activity - such as elective surgery - in which competition for patients does occur. This paper contributes to the development of a value-added, multi-product conception of hospital quality by studying the impact of a major competition-promoting reform to the English NHS in 2006, in which patients were allowed to choose which hospital they attended for elective surgery, on PROMs of health gain from hip and knee replacement, groin hernia repair, and varicose vein surgery. In contrast to the existing literature, I find that the competition brought about by the introduction of patient choice of hospital may have had a negative effect on clinical quality. I put forward a theoretical framework that explains these findings, and conclude by arguing that future research should model the hospital as a multi-product firm, and capture clinical quality using value-added outcome measures.