The Impact of Competition on Management Practices in Public Hospitals

We exploit a unique dataset and quasi-experiment to identify the impact of competition on public hospital management practices. We use a new double-blind management scoring tool to interview 161 physicians and managers in English National Health Service (NHS) hospitals, covering 61% of acute hospitals. We find this management measure is strongly correlated with hospital performance as measured by clinical outcomes (e.g. survival rates from heart attacks) and general operational and financial outcomes. We then instrument the number of competing local public hospitals with the share of marginal local political constituencies. In the UK Governments almost never closes public hospitals in political marginals because they risk losing seats in a general election. But they do regularly close hospitals in both their own and the opposition‟s non-marginal constituencies. Over the period we study the Labour government closed and merged a large number of hospitals, leading to wide variations in hospital concentration levels, which are strongly correlated with whether the constituency was politically marginal. Exploiting this identification we find that product market competition, as proxied by the proximity of other hospitals, is significantly associated with better management.