Patients’ choice and hospital quality competition: Unintended impacts of the signals

Abstract: Patients’ choice is central to the recent reforms of the NHS and it relies on quality indicators being publicly available. We write a model in which patients can choose hospitals and hospitals choose their treatment quality. As is standard, consumers’ willingness to pay for quality - and to acquire information on quality - is increasing in wealth. Consumers aim to maximize the quality of the treatment received. Hospital quality indicators are available to patients with a certain precision. We find that the precision with which quality is released may increase the disparity of treatments across the wealth distribution. We test some of the implications of this model using the Hospital Episodes Statistics for England and we find that wealthier individuals in lower income areas exercise choice to a greater degree than their less wealthy neighbours and individuals tend to use GP defined choice sets. These findings are consistent with our choice model and empirical models of rationally inattentive choice.