Assessing the Quality of Public Services : Does Hospital Competition Crowd Out the For-Profit Quality Gap?

We examine variation in US hospital quality across ownership, market concentration and membership of a hospital chain. We use a new measure of quality derived from the penalties imposed on hospitals under the flagship Hospital Readmissions Reduction Program. We document a robust and sizable negative for-profit quality gap: for-profit hospitals are consistently of lower quality. We find that being located in a more competitive market erases a substantial part of the gap. This reduction occurs most for hospitals that are part of large national chains. For such hospitals, we estimate that in a fully competitive market the gap is completely erased