Elsevier

Health Policy

Volume 98, Issue 1, November 2010, Pages 65-73
Health Policy

Hospital competition and patient-perceived quality of care: Evidence from a single-payer system in Taiwan

https://doi.org/10.1016/j.healthpol.2010.06.022Get rights and content

Abstract

Objectives

To examine the effects of market competition on patient-perceived quality of care under a single-payer system in Taiwan.

Methods

Data came from two nationwide surveys conducted on discharged patients and National Health Insurance (NHI) hospital claim datasets in 2002 and 2004. Competition was measured by the Herfindahl–Hirschman Index (HHI). Quality of care was measured by patient-rated hospital performance including interpersonal skills and clinical competence domains. We used the instrumental variable approach to address the endogeneity between competition and patient-perceived quality of care.

Results

The results showed that HHI was significantly associated with a decrease in the perceived interpersonal skills (coefficient of −0.460; p < 0.001), indicating that the interpersonal skill level increases in competition. A similar association was found for the perceived clinical competence (coefficient of −0.457; p = 0.001).

Conclusion

Quality of care from the patients’ perspective is sensitive to the degree of competition. By using patient-reported data, this study provides new evidence concerning competition and quality of care.

Introduction

Microeconomic theory indicates that market competition decreases the price. Competition in healthcare market tends to be complicated, yet a negative relationship between competition and price has been observed [1]. However, the effect of competition on the quality of care has been an important issue in the health care market for decades. Findings from previous studies have tended to be inconclusive [2], possibly due to variations in the measurement of quality of care as well as the different settings of the studies.

The measurement of the quality of care is a critical issue. The majority of previous studies have used mortality as an indicator for the quality of care [3], [4], [5], [6], [7], [8], [9], [10]. Several studies have used other indicators such as measurement of complications [11] or guideline adherence [12]. However, the purpose of competition among healthcare providers is to attract patients and increase the market share of these providers’ services. Few studies have incorporated patients’ viewpoints into the measurement of the quality of care while examining the effect of market competition. In recent years, researchers and clinicians have become increasingly interested in patients’ perceptions of the quality of care [13].

Competition will improve providers’ sensitivity to patients, based on the assumption that patients are responsive to quality in their choice of hospital. However, the health care market is characterized by information asymmetry. Patients usually do not have sufficient information or complete understanding about traditional quality indicators such as complication rates or guideline adherence rates. Therefore, patient-perceived quality and words-of-mouth from relatives and friends have become the main sources of information about hospitals or physicians when patients seek health services [14], [15]. Thus, providers in a more competitive market will compete for patients by promoting patient perceptions of healthcare quality.

Romano and Mutter [16] argued that patient-centered measures such as satisfaction and previous experiences with care should be more sensitive to competition than provider-centered measures. Up to now, studies taking patient experiences as measures of care quality have remained limited. Scanlon et al. [17], [18], [19] used quality indicators from Healthcare Effectiveness Data and Information Set (HEDIS) and Consumer Assessment of Health Plans Survey (CAHPS) measures, and examined the effects of health maintenance organization (HMO) competition on healthcare quality.

Research setting is another key factor contributing to controversy in research on competition and quality of care. For example, previous studies have found that greater hospital competition is associated with lower mortality and that the magnitude of hospital competition for AMI patients is stronger in markets with high HMO penetration [5], [10]. In addition, Gowrisankaran and Town [6] reported that the impact of competition on quality is confounded by patients’ coverage under Medicare or HMO insurance. A market under a single-payer system would be ideal for investigations on competition and the quality of care.

Some industrial organization literature has examined the impact of competition among firms on product quality. It is proposed that competition may increase product quality because better quality increases demand [20]. Gaynor [2] focused on the role of market price to explain the association between competition and quality in the healthcare sector. Prices were considered to be either fixed, as observed for prices regulated by the government, or variable, as in the healthcare market. The assumption of whether a price is fixed or variable leads to very different results. If the price is fixed, hospitals do not compete for patients based on price but rather on non-price measures such as quality. Therefore, the impact of hospital competition is clearly quality-promoting when the regulated price is higher than the marginal costs of the hospital. On the other hand, the impact of competition may drive quality up or down depending on the relative effects of the “quality elasticity of demand” or the “price elasticity of demand” [2]. This distinction explains much of the apparent heterogeneity in the empirical literature.

Under the price-regulated scheme, it is difficult for hospitals to initiate price competition and therefore they may try to differentiate themselves by improving the quality of care. The magnitude of the effects of competition on quality depends on the quality elasticity of demand. We assume that the quality elasticity of demand may not be the same for different measures of quality. Furthermore, we consider that patient-perceived quality measures are more easily discernible to patients than are traditional quality measures such as mortality or readmission. If a hospital intends to attract more patients to expand its market share, it will increase the quality to which patients can easily respond.

Hospitals in Taiwan have a mix of public hospitals (16%), non-for-profit hospitals (15%) and for-profit hospitals (69%) [21]. Most of the physicians are hospital employees and the others were self-employed owners or partners [22], [23]. In 1995, Taiwan implemented a compulsory National Health Insurance (NHI) program for entire population. By 2006, approximately 99% of Taiwan's 23 million residents were enrolled in the NHI program. There is no compulsory referral mechanism under NHI system and patients can seek outpatient or inpatient care from almost every hospital based on their preference. In other words, the system is different from those with a referral system characterized by general practitioners as gatekeepers, such as the United Kingdom or the United States. In Taiwan, hospital quality information to the public or feedback to the hospitals is still in the early stage of development. Only a few indicators concerning healthcare quality for individual hospitals are listed in the web-site of the Bureau of NHI [24]. Up to date, patient-perceived quality and words-of-mouth from relatives and friends are the main sources of quality information in Taiwan [15]. In addition, in this single-payer system, hospitals directly compete for patients rather than for contracts with various health insurance plans as they do in the United States. Therefore, Taiwan provides a more favorable research setting than the United States to investigate the effects of competition on quality.

In Taiwan, payment for hospital services is regulated by NHI's uniform fee schedules, regardless of a case-payment scheme (similar to the Diagnosis Related Groups, DRGs) or a fee-for-services payment scheme. Therefore, hospitals cannot set their own prices for services that were covered by the NHI. In other words, the market price is regulated by the Bureau of NHI, but not determined by the market force. In addition, according to the NHI regulation, patients only pay 10% of the total hospitalization expenses as the co-payment. Hospitals may charge a patient for other services not covered by the NHI program, such as the extra fee for staying in single- or double-bed wards. Therefore, the amount of fees that a hospital can charge to a patient for healthcare services is highly regulated under the NHI system. In this case, hospitals may compete for patients by improving their quality of care, extending opening hours or providing transportation services rather than by reducing prices.

Our paper extends the existing literature in two ways. First, patient-perceived quality is a more sensitive indicator than traditional quality measures. To our knowledge, prior research regarding hospital competition and patient-perceived quality of care is scarce. Second, we examine the association between competition and quality of care under a universal health insurance scheme, which is a favorable setting for this research topic. The present study aims to examine the effects of market competition on patients’ perceived quality of care in Taiwan.

Section snippets

Data and sample

Data used in this study came from two sources: the 2002 and 2004 Hospital Discharged Patient Surveys and NHI hospital claim data. Patients discharged from hospitals accredited as medical center hospitals, regional hospitals, and district teaching hospitals were analyzed [25]. Since diagnostic and treatment procedures can vary significantly by disease, we surveyed only patients with certain diagnoses and procedures. After consulting medical professionals and considering the prevalence of the

Descriptive analyses

There were 4548 and 5017 discharged patients who completed questionnaires in 2002 and 2004. Table 2 presents the characteristics of the study sample. In 2002, the mean scores for hospital interpersonal skills and clinical competence were 19.91 (Std 2.89) and 19.70 (Std 3.22), respectively. In 2004, the mean scores for hospital interpersonal skills and clinical competence were 20.11 (Std 2.83) and 19.37 (Std 3.13), respectively. The average age of subjects was 54.62 and 53.41 years in 2002 and

Discussion

This study is the first one to investigate the impact of competition on patient-perceived quality of care by using data from a single-payer healthcare market. We found that competition was positively associated with the perceived quality of care in terms of either interpersonal skills or clinical competence. Since healthcare prices are highly regulated under the NHI program in Taiwan, it is difficult for hospitals to initiate price competition. Therefore, competition among hospitals is likely

Acknowledgements

The study was supported by grants from the National Science Council (NSC95-2416-H-002-015 and NSC98-2410-H-002-054) in Taiwan.

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