There have been a number of studies that have examined how publicly reporting quality ratings (for health plans, physicians, hospitals or other health care providers) affects market share. Less attention has been paid to the effect of measured quality on health care prices. A paper by Huang and Hirth (2016) aim to answer just this question.
We use the rollout of the five-star rating of nursing homes to study how private-pay prices respond to quality rating. We find that star rating increases the price differential between top- and bottom-ranked facilities. On average, prices of top-ranked facilities increased by 4.8 to 6.0 percent more than the prices of bottom-ranked facilities. We find stronger price effects in markets that are less concentrated where consumers may have more choices of alternative nursing homes. Our results suggest that with simplified design and when markets are less concentrated, consumers are more responsive to quality reporting.
Setting higher prices at high quality facilities should be seen as a good thing as allowing high-quality providers to raise prices leads to move investment in quality.
- Sean Shenghsiu Huang, Richard A. Hirth, Quality rating and private-prices: Evidence from the nursing home industry, Journal of Health Economics, Volume 50, December 2016, Pages 59-70, ISSN 0167-6296, http://dx.doi.org/10.1016/j.jhealeco.2016.08.007.