Hospital multi-dimensional quality competition with medical malpractice

Abstract

In this paper, we study the effect of competition on the plural dimensions of hospital quality in a market with regulated prices. Our results are obtained with the standard model of hospital competition where a distinction can now be made between two different dimensions of quality while using fair general demand and cost structure. In our setting, hospitals can choose to invest either in the quality of health care services which reduces exposition to the risk of medical error, or in another dimension of quality which is independent to the risk of medical malpractice (appropriateness, patient-centeredness, amenities, etc.). We derive the conditions under which an intensified competition can not only raise or decrease hospital quality, but can also lead to a substitution between the two dimensions of quality. We also investigate how hospital competition and tort law may interact to help improve quality of care by deterring negligent behaviors of providers of care. Lastly, we use a model of strategic pretrial negotiation under asymmetric information to examine the effect of hospital competition on the resolution of medical disputes through its effect on quality.