When prices are set above marginal cost, providers competing for patients are expected to set quality at a level that is increasing in the number of rivals (Gaynor, 2006[104]). The intuition is that in systems with regulated prices, competition can improve outcomes when (i) patients can choose, (ii) quality is at least partially observable by patients, and (iii) providers benefit financially or reputationally from attracting additional patients. Several extensions have adapted this framework to the institutional specifics of the sector without significantly changing its results (Gaynor, Ho and Town, 2015[14]).
Gaynor, Moreno-Serra and Propper (2013[105]) analyse the UK reform and conclude that “increased competition saves lives without raising costs”, examining both clinical outcomes and measures of productivity and expenditure. Gaynor, Propper and Seiler (2016[106]) find that after choice constraints were relaxed in the UK, patients became more responsive to clinical quality. This is associated with a modest reduction in mortality and a substantial increase in patient welfare, with hospitals improving quality in response to stronger demand incentives. The authors quantify the resulting consumer welfare gains in monetary terms. In particular, the implied travel time reduction yields a welfare effect of approximately USD 6 226 per person. A similar calculation based on mortality rates and the statistical value of life yields around USD 309 900 per person.
The positive impact of competition on quality is not robust across all specifications, outcome measures or patient groups. Moscelli, Gravelle and Siciliani (2023[107]) demonstrate that results are highly specific to the diagnosis. The reforms significantly reduced mortality for hip fracture patients but found less consistent effects for heart attacks and strokes.
A similar reform in Norway is examined in Brekke et al. (2021[108]), which finds that, following the introduction of patient choice, hospitals in more competitive areas reduced both some measures of mortality rates and the duration of hospital stays, while they increased readmissions to a small extent.
Or et al. (2020[38]) discuss the impact of competition on quality in breast cancer surgery in France, using the adoption of innovative technologies as a proxy of quality. The study finds that more competitive markets are associated with higher likelihood of innovative procedures.