Involuntary Benchmarking and Quality Improvement: The Effect of Mandated Public Disclosure on Hospitals

Abstract

This paper documents the responses of Pennsylvania hospitals to the public dissemination by the Pennsylvania Health Care Cost Containment Council (PHC4) in 1990 of mandated hospital disclosures of financial and nonfinancial performance information. We find that PHC4's relative performance disclosures had an effect in that hospitals that performed poorly on patient quality of care, as measured by mortality outcomes, reacted by making significant improvements in this measure by 1992, although this was accompanied by lower reductions in length of stay. Further, we find that the improvements in mortality outcomes were more marked for DRGs in more competitive environments and for hospitals that ranked higher on financial condition in the year of disclosure. Additionally, the rationale for these costly quality improvements in the period following the disclosure appears to be related to market share, that is, poorly performing hospitals lost, whereas better performing hospitals gained in market share.