Premium
How Costly is Hospital Quality? A Revealed‐Preference Approach
Author(s) -
Romley John A.,
Goldman Dana P.
Publication year - 2011
Publication title -
the journal of industrial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.93
H-Index - 77
eISSN - 1467-6451
pISSN - 0022-1821
DOI - 10.1111/j.1467-6451.2011.00468.x
Subject(s) - quality (philosophy) , productivity , competition (biology) , quality costs , function (biology) , preference , operations management , business , medicine , marketing , economics , activity based costing , microeconomics , ecology , philosophy , epistemology , evolutionary biology , biology , macroeconomics
We analyze the cost of quality improvement in hospitals, dealing with two challenges. Hospital quality is multidimensional and hard to measure, while unobserved productivity may influence quality supply. We infer the quality of hospitals in L os A ngeles from patient choices. We then incorporate ‘revealed quality’ into a cost function, instrumenting with hospital demand. We find that revealed quality differentiates hospitals, but is not strongly correlated with clinical quality. Revealed quality is quite costly, and tends to increase with hospital productivity. Thus, non‐clinical aspects of the hospital experience (perhaps including patient amenities) play important roles in hospital demand, competition, and costs.