Research

Working papers

Quality choice with reputation effects: Evidence from hospices in California (Job Market Paper)

[Paper]

Abstract: Hospices - firms that give palliative care to dying patients - form a large and growing industry in the US with significant implications for patient welfare and cost savings. Using data from California, I study how a hospice's quality choice is influenced by reputation concerns, and explore counterfactual policies to improve hospice quality. There is no price competition because Medicare pays hospices a fixed per-day rate for each patient, so hospices compete on reputation. A hospice's reputation is a stock of its past quality choices. Thus a hospice can build up its reputation stock over time by consistently choosing high quality. First I estimate a structural model of hospice choice by consumers, and find that hospice reputation has a strong effect on demand. Then I build a dynamic oligopoly model of hospices choosing quality to compete on reputation against rivals. This is used to recover the hospice cost function and conduct the following policy counterfactuals. As reputation becomes more persistent - for instance, through the creation of an online hospice rating system - hospices choose higher quality. Hospices also choose higher quality as Medicare prices increase, but the response depends on how differentiated they are in characteristics from rivals. Finally, a hybrid per-day per-visit hospice reimbursement scheme achieves the same quality with nearly 30% lower spending than the current per-day Medicare scheme.