Association for Public Policy Analysis & Management

Competition has been shown to be strongly linked to quality in hospital markets; the relationship between competition and quality however has remained unexplored in physician practice markets despite large increases in concentration. Seven years (2003-2008) of detailed Medicare claims are used to build a panel of cardiology practices and test whether increased market concentration affects measures of quality, such as 30-day mortality. Adapting the instrumental variables method pioneered by Kessler and McClellan (2000) in examining hospital markets, I estimate physician practice choice models to generate exogenous measures of market concentration. I then estimate the relationship between market concentration and quality using new quantile regression methods for fixed effects estimation. Results indicate a 10 percent increase in concentration is associated with a 2.5 percent increase in mortality from percutaneous coronary interventions (PCI) which suggests that market structure is a large determinant of physician quality.