How does competition impact community health center quality of care? – Healthcare Economist

That is the question posted by a recent paper by Li and Dor (2024). However, they define competition not just by the number of community health center (CHC) competitors or market concentration (e.g., Herfindahl-Hirschman Index, HHI) but also the quality of care provided by their competitors. A key methodological question is how this should be measured.

One approach would be to look at the correlation of CHC with that of it’s competitors. The problem with this approach is that there could be contemporaneous feedback effects. For instance, it wouldn’t be clear if quality of care from the competitor impacted the index hospital or the quality of care of the index hospital impacted the competitor. A second approach could take into account that CHCs likely respond to improvements in quality of its competitors in the recent past with improved quality now. A natural approach to address this would be to look at lagged quality of a CHC’s competitors. While this second approach is superior to the first, there could still be feedback effects. Instead, the authors opt for a third strategy which uses an instrumental variables approach where a competitor’s quality is instrumented with the quality of the competitor’s competitors. Competitor’s competitors are firms that compete with each competitor firm but are located outside the market area of the index firm. CHC markets are defined as all ZIP codes for a given index CHC that contribute at least 1% of all the index CHC patient volume.

What do they find using this approach?

A one-percent increase in competitors’ quality was associated with a 0.71-percent increase in an index CHC’s composite quality (p p p p 

You can read the full paper for more details here.