Gravelle et al. (2014) propose a Nash equilibrium model and associated response functions to study the question of how a hospital responds to the quality of its rivals. The authors specifically test whether or not hospital quality is used as a strategic tool: Does a hospital increase its own quality in response to a rival’s increase in quality? They find that for some quality indicators, quality improvement has spillover effects in a spatially defined market, using data from the United Kingdom’s National Health Service.
We use the basic framework of Gravelle and colleagues (2014) to study a panel of all Florida short-term, general hospitals between 2004 and 2015. Data for this study come from Florida’s Center for Health Information and Policy Analysis, which include hospital inpatient discharge and financial data collected annually from all Florida hospitals. We also utilize the AHRQ’s composite measure of several patient-safety indicators (PSIs) as our measure of hospital quality. The basic empirical model is a regression of the composite for each hospital and year, for which the key independent variables are quality investments made by the hospital, the average composite of competing hospitals, and the intensity of competition in the hospital market. Regression models include a hospital-level fixed effects least squares, and an Arellano-Bond linear dynamic panel, which explicitly allows for endogenous explanatory variables. As in Gravelle et al. (2014), we use travel time to define the spatial market and number of rival hospitals to measure competitive intensity. We estimate both hospital fixed effects and dynamic-panel models to address endogeneity. Our initial results show that there is a small positive effect (i.e. a hospital improves in quality in response to improvement of competitors).