Competition, quality and integrated health care

Abstract

Integration of health care services has been promoted in several countries to improve the quality and coordination of care. We investigate the effects of such integration in a model where providers compete on quality to attract patients under regulated prices. We identify countervailing effects of integration on quality of care. While integration makes coordination of care more profitable for providers due to bundled payments, it also softens competition as patient choice is restricted. We also identify circumstances due to asymmetries across providers and/or services under which integration either increases or reduces the quality of services provided. In the absence of synergies, integration generally leads to increases in quality for some services and reductions for others. The corresponding effect on health benefits depends largely on whether integration leads to quality dispersion or convergence across services. If the softening of competition effect is weak, integration is likely to improve quality and patient outcomes.