The Effect of Public and Private Quality Information on Consumer Choice in Health Care Markets

Information-based policy interventions have become increasingly common in health care markets. The rationale for such interventions is to correct a market failure in which consumers are asymmetrically informed about relevant attributes of a health care provider (e.g., quality). The magnitude of this market failure and the effect of public intervention on welfare depend on whether there exists market-based information on quality that alters consumer choice. To better understand such effects, I study consumer response to information provided by U.S. News and World Report hospital rankings and hospital reputation before and after the release of report cards on surgeon quality in Pennsylvania’s market for cardiac bypass surgery. I estimate a model of consumer demand for surgeon quality (mortality) that integrates market-based information and quality reporting while controlling for the role of insurers and referring physicians in consumers’ choice. The role of public versus market-based learning is identified using the interaction of the intertemporal change in information induced by the release of report cards with differences across providers in market-based information on those providers’ quality. I find that market-based mechanisms impact patient response to quality prior to the release of report cards. After public release of information, the response to surgeon quality increases significantly. However, existing U.S. News and World Report rankings reduce consumer response to surgeon quality.