Hospital quality competition and the economics of imperfect information

Competition in the health care industry has traditionally focused on indices of quality rather than price. Even in a period of vigorous price competition, the issue of quality remains central, given patient uncertainty. Quality in the future will be assessed, however, not only on the basis of structural characteristics--such as the acquisition of new clinical technologies--but also in terms of patient outcomes. Because outcome statistics are influenced by the severity of the patient's disease at the time of treatment, it is likely that health plans and medical care institutions may accelerate their preference for healthier patients. Pure price competition may have only a modest role to play.