Competition and Equity in Health Care Markets

Abstract

We provide a model where hospitals compete on quality under a fixed price regime to investigate (i) whether hospital competition, as measured by an increase in fixed prices or increased patient choice, increases or reduces the gap in quality between high- and low-quality hospitals, and as a result, (ii) whether competition increases or reduces (pure) health inequalities across hospitals and patient severities. The answer to the first question is generally ambiguous, but we find that the scope for competition to result in quality convergence across hospitals is larger when the marginal patient health gains from quality decrease at a faster rate. Whether competition increases health inequalities depends on the type and measure of inequality. If the patient health benet function is not too concave in quality, health inequalities due to postcode lottery will increase (decrease) whenever competition induces quality dispersion (convergence). Competition reduces health inequalities between high- and low-severity patients if patient composition effects, due to high-severity patients being more likely to exercise choice, are small. We also investigate the effect of competition on health inequalities as measured by the Gini and the Generalised Gini coe¢ cients, and highlight differences compared to the simpler dispersion measures.