Does competition improve health care quality?

January 30, 2009 in Academic Articles, Health Insurance, Quality, Supply of Medical Services

If economists decided to re-write the Ten Commandments, “Thou shalt love Competition” may make the list. However, does competition always improve quality? Even in the case of health care?
A paper by Scanlon et al. (2008) “…found no evidence of a strong and consistent relationship between HMO competition (measured either by the HHI or the number of HMOs) and plans’ scores on the CAHPS and HEDIS measures of health plan performance.” The authors did find, however, that increased competition can lead to lower health premiums.
Because price is easily observable and quality is not, it seems sensible that increased competition will push down prices, but may not improve quality. Further, more competition means more fragmented medical care, which can increase the cost to provide quality health care services.