Predicting Fixed Effects: Assessing the Quality of Public Services: Does Hospital Competition Crowd-out the For-profit Quality Gap?

Johannes Kunz (Monash University)

We examine variation in hospital quality across ownership, market concentration and membership of a hospital system. We use a measure of quality derived from the penalties imposed on hospitals under the flagship Hospital Readmission Reduction Program. We employ a novel estimation approach that extracts latent hospital quality from panel data on penalties and addresses the problem of non-penalized hospitals in short panels. Our quality measure correlates strongly across penalized conditions and with other non-incentivized quality metrics. We document a robust and sizable for-profit quality gap, which is largely crowded-out by competition between hospital chains, particularly for high-quality hospitals.