Hospital Quality Interdependence in a Competitive Institutional Environment: Evidence from Italy

In this paper we study the impact of competition on hospital adverse health outcomes, using data on patients admitted to hospitals located in the Lombardy region in Italy between 2004 and 2013. We propose an economic framework that incorporates both short and long range forms of competition among hospitals. In a set up where prices are regulated, and under the assumption that hospitals are profit maximisers, hospital managers compete locally in quality to attract more patients. At the same time, managers have an incentive to compete with all other hospitals within the Lombardy region as their relative quality performance will potentially affect their future states. Our empirical model exploits methods from the graphical modelling literature to estimate local rivals, as well as the degree of local and global interdependence among hospitals. Our results show a significant positive degree of short and long range dependence, which suggests the existence of forms of local and global competition among hospitals with relevant implications for the healthcare policy.