Does Competition Improve Health Care Quality?

Authors

  • Dennis P. Scanlon,

    1. 504 Ford Building, The Pennsylvania State University, University Park, PA 16802-6500,
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    • Address correspondence to Dennis P. Scanlon, Ph.D., Associate Professor of Health Policy and Administration, 504 Ford Building, The Pennsylvania State University, University Park, PA 16802-6500; e-mail: dpscanlon@psu.edu. Shailender Swaminathan, Ph.D., Postdoctoral Fellow, is with the Center for Gerontology and Health Care Research, Brown University, Providence, RI. Woolton Lee, M.S., Ph.D. candidate, is with the Department of Health Policy and Administration, The Pennsylvania State University, University Park, PA. Michael Chernew, Ph.D., Professor, is with the Department of Health Care Policy, Harvard Medical School, Boston, MA.

  • Shailender Swaminathan,

    1. Center for Gerontology and Health Care Research, Brown University, Providence, RI,
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  • Woolton Lee,

    1. Department of Health Policy and Administration, The Pennsylvania State University, University Park, PA,
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  • Michael Chernew

    1. Department of Health Care Policy, Harvard Medical School, Boston, MA
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Abstract

Objective. To identify the effect of competition on health maintenance organizations' (HMOs) quality measures.

Study Design. Longitudinal analysis of a 5-year panel of the Healthcare Effectiveness Data and Information Set (HEDIS) and Consumer Assessment of Health Plans Survey® (CAHPS) data (calendar years 1998–2002). All plans submitting data to the National Committee for Quality Assurance (NCQA) were included regardless of their decision to allow NCQA to disclose their results publicly.

Data Sources. NCQA, Interstudy, the Area Resource File, and the Bureau of Labor Statistics.

Methods. Fixed-effects models were estimated that relate HMO competition to HMO quality controlling for an unmeasured, time-invariant plan, and market traits. Results are compared with estimates from models reliant on cross-sectional variation.

Principal Findings. Estimates suggest that plan quality does not improve with increased levels of HMO competition (as measured by either the Herfindahl index or the number of HMOs). Similarly, increased HMO penetration is generally not associated with improved quality. Cross-sectional models tend to suggest an inverse relationship between competition and quality.

Conclusions. The strategies that promote competition among HMOs in the current market setting may not lead to improved HMO quality. It is possible that price competition dominates, with purchasers and consumers preferring lower premiums at the expense of improved quality, as measured by HEDIS and CAHPS. It is also possible that the fragmentation associated with competition hinders quality improvement.

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