Direct and Spillover Effects of Quality Disclosure Regulation: Evidence from California Hospitals

Abstract

Quality disclosures regarding medical outcomes such as patient mortality are common healthcare policy instruments. Mixed evidence exists on whether quality disclosures improve outcomes for disclosed ailments. Moreover, disclosure policies can generate spillovers and impact ailments not targeted by the policy. We examine the effects of quality disclosure regulation on mortality improvements in disclosed and nondisclosed ailments. We use patient records for California hospitals for 1995–2014 and construct three groups of ailments: those that were the target of disclosure regulation, complementary ailments that were not the target of disclosure regulation but are medically related to the disclosed ailments, and medically unrelated ailments. Using a difference-in-differences design, we find that quality disclosure regulation is associated with declines in mortality risk of disclosed ailments ranging from 11.5% to 23%. Quality disclosure regulation is also associated with improvements for complementary ailments that are not the target of the disclosure policy. Such positive spillover effects yield an estimated 15.2% decline in mortality risk. Consistent with demand-side pressures driving improvements, market shares become sensitive to disclosed quality measures after disclosure regulation. Our findings of direct and spillover effects have implications for disclosure regulation. This paper was accepted by David Simchi-Levi, accounting. Supplemental Material: The data files and online appendix are available at https://doi.org/10.1287/mnsc.2023.4817 .