Does price deregulation in a competitive hospital market damage quality?

Abstract

Regulators may be hesitant to permit price competition in healthcare markets because of its potential to damage quality. We assess whether this fear is well founded by examining a reform that permitted Dutch health insurers to freely negotiate prices with hospitals. Unlike previous research on hospital competition that has relied on quality indicators for urgent treatments, we take advantage of a plausible absence of selection bias to identify the effect on the quality of elective procedures that should be more price responsive. Using data on all admissions for hip replacements to Dutch hospitals and a difference-indifferences comparison between more and less concentrated markets, we find no evidence that price deregulation in a competitive environment reduces quality measured by hip replacement readmission rates.

Have Dutch Hospitals Saved Lives and Reduced Costs? A longitudinal patient‐level analysis over the years 2013–2017

“…More specifically, insurers are expected to select and contract hospitals with better prices and quality (Krabbe‐Alkemade et al., 2017 ). While the share of freely negotiable DOTs (diagnosis‐treatment combinations, the Dutch form of diagnosis‐related groups) 1 amounted to approximately 10% of hospital revenue in 2005, it gradually increased to 20% in 2008, 34% in 2009, and 70% in 2012 (Schut & van de Ven, 2011 ; Roos et al., 2020 ). Thus, hospitals are incentivized to reduce cost and hospital mortality, as considered in this study.…”

“…Roos et al. ( 2020 ), for instance, focus on the period 2001 through 2010 and did not find negative implications of price deregulation on quality (operationalized with hip‐replacement readmission rates). Krabbe‐Alkemade et al.…”

“…2012 was, for instance, the year of transitioning from Diagnose Behandeling Combinatie (DBCs) to DOTs and of the introduction of a nationwide constraint on total hospital costs. Moreover, while selective contracting has indeed been possible since 2006, it has only gained momentum since 2010 (Roos et al., 2020 ; van Ineveld et al., 2018 ).…”

“…The effectiveness of the Dutch reform continues to be disputed (Douven et al, 2020;Krabbe-Alkemade et al, 2017). Roos et al (2020), for instance, focus on the period 2001 through 2010 and did not find negative implications of price deregulation on quality (operationalized with hip-replacement readmission rates). Krabbe-Alkemade et al (2017) find that total hospital costs decreased as market competition increased between 2005.…”

“…DBCs were the predecessors of the DOTs. Prior to 2012, there were more than 29,000 different DBCs(Roos et al, 2020). With the introduction of the DOTs, the number of diagnosis-treatment combinations was reduced substantially to approximately 4400.2 A representative patient in our sample is male, 77 years of age, with the long-term condition coronary heart disease, and belonging to SES category 5.…”