Matthew Skellern. Updated version posted 4 November 2014

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1 1 Web Appendix The hospital as a multi-product firm: Measuring the effect of hospital competition on quality using Patient-Reported Outcome Measures Supplementary Results Matthew Skellern Updated version posted 4 November 2014 This Web Appendix reports estimates not provided in the main body of the paper. Section WA.1 reports estimates when health gain from hip replacement and knee replacement are examined separately, rather than being grouped together under the heading of orthopaedic surgery. Section WA.2 reports estimates using our historical location instrument for all four of our main competition measures, as opposed to just for the GP-centred, GP-level competition measure. Section WA.3 reports the estimates from the full set of robustness tests using our GP-centred, hospital-level competition index, instrumented by the pre-reform average level of competition. WA.1. Disaggregated results for hip and knee replacement In the paper, regression estimates using health gain from hip replacement and knee replacement are aggregated into a single outcome measure, health gain from orthopaedic surgery, with a dummy variable indicating knee replacement included to capture level differences in health gains from the two types of surgery. Hip and knee replacement surgery were examined together because they are both performed within a hospital s orthopaedic department. It did not seem intuitive to hypothesise that competition might have differential effects within such a surgical specialty, and so hip and knee replacements were analysed together, even though these two types of surgery will generally be performed by different surgeons. Table WA.1 reports estimates of the effect of competition on health gain from surgery when hip and knee replacement are examined separately. Standard errors are reported in brackets, and the F-statistic on the excluded instrument is reported in italics. For further details, see Table 12. It turns out that the results are quite different for the two types of surgery. For our baseline estimates, using the pre-reform average level of competition as an instrument for current-period competition, competition has a negative effect on health gain from knee replacement surgery across a wide range of specifications, whereas there are no significant effects for hip replacement surgery although the estimates are almost always negative in sign. These disaggregated results indicate that the significant negative effects of competition on health gain from orthopaedic surgery using the pre-reform average HHI instrument are mainly being driven by those in the sample that underwent knee replacement surgery.

2 2 By contrast, when our historical location instrument is used in conjunction with our GPcentred, GP-level competition index (the only competition index for which the first stage is significant when the historical location instrument is used), there is a positive effect of competition on health gain from hip replacement surgery (as captured by the Oxford Hip Score) significant at the 5 per cent level. All other estimates using this instrument and competition index the EQ-5D for hip replacement, the EQ-5D for knee replacement, and the Oxford Knee Score are insignificant and varying in sign. These disaggregated results indicate that the marginally significant positive effect of competition on health gain from orthopaedic surgery, using the historical location instrument and the GP-centred, GP-level competition index, is being driven by those in the sample that underwent hip replacement surgery, with the knee replacement patients in the sample weakening the statistical significance of this estimate. Table WA.1 Baseline estimates reported separately for hip and knee replacement surgery Pre-reform average instrument Historical location instrument (1) (2) (3) (4) (5) GP- Hosp GP- GP Actual Predicted GP- GP hip_eq5d (0.0140) ( ) ( ) ( ) ( ) hip_ox ** (0.576) (0.165) (0.222) (0.144) (0.279) knr_eq5d ** (0.0128) ( ) ( ) ( ) ( ) knr_ox *** ** *** (0.603) (0.179) (0.243) (0.161) (0.323) The disaggregated estimates reported here are of particular interest because of a recent paper by Feng et al. (2014) that, using a subset of the data examined as part of the present study (namely, hip replacement patients in the 2011/2012 financial year), examined the association between hospital competition and health gains from hip replacement surgery. Feng et al. (2014), defining competition using an centred, hospital-level HHI based on actual patient flows, find that there was no significant association between competition and health gain from hip replacement surgery when all the patients in the sample were included in their regression. However, when the regression was run using only the healthiest half of the sample (as defined by pre-operative health status), there was a marginally positive association between competition and health gain from surgery (p-value 0.09). Although their paper does not use any instrumentation methods and restricts itself to studying correlations, rather than seeking to establish causal relationships, their findings are, prima facie, in tension with those of the present paper, which finds that hospital competition had a negative effect on health gain from orthopaedic surgery. The disaggregated estimates reported in this web appendix show that there is no contradiction between the findings of the

3 3 two papers, as they highlight that the negative effects of competition on orthopaedic surgery reported in the present study are mainly driven by observations pertaining to knee replacement surgery, which were excluded from the Feng et al. (2014) study. In considering the relationship between the findings of Feng et al. (2014) and the present study, it is also relevant to point out that Table 13.7 of the present study, which reports estimates of the effect of competition on health gain from elective surgery using a range of alternative competition indices, shows that, when a hospital-centred, hospital-level HHI is used to measure competition intensity, there is a statistically significant positive relationship between competition and health gain from orthopaedic surgery at 5 per cent level in one case, and at 10 per cent level in three other cases. These results, in conjunction with those of Feng et al. (2014), suggest that there is a weak positive cross-sectional correlation between competition intensity and health gain from orthopaedic surgery (and particularly hip replacement surgery), but that this relationship breaks down when more rigorous identification strategies, intended to address problems of reverse causality and omitted variable bias, are employed. Table WA.2 reports separate estimates for hip and knee replacement when the EQ-VAS is used as an outcome variable. Standard errors are reported in brackets, and the F-statistic on the excluded instrument is reported in italics. For further details, see Table 12. The negative effect of competition on health gain from knee replacement surgery as captured by the EQ- VAS confirms the overall picture that the negative effect of competition on orthopaedic surgery in the estimates reported in the main body of this paper is being driven by the knee replacement patients in the sample, with no such negative effect observable for the hip replacement patients in the sample. Table WA.2 Estimates for EQ-VAS reported separately for hip and knee replacement surgery Pre-reform average instrument Historical location instrument (1) (2) (3) (4) Actual Predicted GP- Hosp GP- GP hip_eqvas (0.899) (0.245) (0.289) (0.571) knr_eqvas ** (0.741) (0.229) (0.296) (0.454) WA.2. Historical Location Instrument Table 13.3 reported the first stage estimates for our four main competition measures instrumented by the historical location instrument proposed by Cooper et al. (2011). It showed that the historical location instrument did a good job of predicting our GP-centred GP-level competition index, but did not do a good job of predicting our GP-centred, hospitallevel competition index or either of our centred competition indices. For this reason, in the main body of the paper we only reported second stage estimates for our historical location instrument with our GP-centred, GP-level competition index.

4 4 Here, we report the second stage estimates for our historical location instrument with our other three main competition measures. Table WA.3 reports the coefficient on our treatment intensity variable when we estimate the effect of competition on elective surgery quality using the standard deviation of the distance to the nearest four hospitals, conditional on average distance to nearest four hospitals, as an instrument for current-period HHI. Lagged values of total and procedure-specific admissions (and their respective quadratics) are included as controls. Column (4), using our GP-centred, GP-level competition index, is identical to Column (5) of Table See start of Table 12 for further explanation. Table WA.3 shows that the estimates using both of our centred competition measures, as well as our GP-centred, hospital-level competition measure, are largely insignificant. These findings of insignificance are in keeping with the poor explanatory power of the first stage regressions for these competition measures. The only second stage estimate that is significant across these three competition measures is that for the AAVQ using our predicted centred competition measure, which indicates a negative effect of competition on varicose vein surgery quality significant at the 10 per cent level. Table WA.3 Estimates using historical location instrument Second stage Historical location instrument (1) (2) (3) (4) Actual Predicted GP- Hosp GP- GP orth_eq5d (0.947) orth_ox * (328.9) (1.586) (3.179) (0.242) her_eq5d (0.0426) (0.0153) (0.0152) (0.0055) vvs_eq5d (0.164) (0.021) (0.0431) (0.0135) vvs_avvq * * (10.07) (0.951) (1.766) (0.513) WA.3. Robustness tests using GP-centred, hospital-level HHI Tables 13.1, 13.2 and 13.6 report estimates using alternative regression specifications for, respectively, our centred competition index instrumented by its pre-reform average level; our predicted centred competition index instrumented by its pre-reform average level; and our GP-centred, GP-level competition index using our historical location instrument. Here we report estimates for the same set of robustness tests using our fourth and

5 5 final main competition measure, namely that which is centred on GP surgeries and calculated at hospital level. These estimates were not reported in the main body because they did not substantially change the picture provided by the estimates already provided. Table WA.4 reports the coefficient on our treatment intensity variable when we estimate the effect of competition on elective surgery quality using a GP-centred, hospital level competition index for a range of alternative specifications. All specifications instrument current-period competition intensity by its pre-reform average value, and use pre-reform average values for all admissions controls. Column (1) includes separate year and region of England dummies (as opposed to interacting these dummies, as is the case in our headline specification). Column (2) omits controls for patient s urban status and hospital catchment area population density. Column (3) omits all observations from London hospitals. Column (4) instruments total trust admissions, procedure-specific hospital site admissions, and their respective quadratic terms with their pre-reform averages. Column (5) omits our scale effects controls (total trust admissions, procedure-specific hospital site admissions, and their respective quadratic terms). Column (6) converts all outcome variables and non-dummy control variables to logs. Column (7) uses procedure-specific HHIs (e.g. competition intensity calculated using varicose vein observations when running regressions using a varicose vein outcome measure), as opposed to competition measures averaged across six procedures. See start of Table 12 for further explanation. Table WA.4 Robustness tests using GP-centred, hospital-level HHI GP-Hosp (1) (2) (3) (4) (5) (6) (7) NoYear NoUrb Proc NoLond IVAdm AdmIV Logs Region Pop orth_eq5d ( ) ( ) ( ) ( ) ( ) ( ) ( ) orth_ox ** * ** ** ** (0.206) (0.21) (0.219) (0.247) (0.175) ( ) (0.406) her_eq5d ( ) ( ) ( ) ( ) ( ) ( ) (0.0051) vvs_eq5d ( ) ( ) ( ) ( ) ( ) ( ) (0.0263) vvs_avvq (0.608) (0.6) (0.559) (0.675) (0.52) ( ) (1.559) Table WA.4 shows that, when this specification is used, higher competition intensity leads to lower health gain from orthopaedic surgery as captured by the OHS/OKS in all specifications, with the exception of that which uses procedure-level competition indices. No other estimates are significant. Thus, these robustness tests, like the main (baseline) coefficient estimates using our GP-centred, hospital-level competition index, provide support for the paper s overall finding of a negative effect of competition on health gain from orthopaedic surgery, but not for its finding of a negative effect of competition on health gain from varicose vein surgery.

6 6 References Cooper, Zack, Stephen Gibbons, Simon Jones and Alistair McGuire (2011), Does Hospital Competition Save Lives? Evidence From the English NHS Patient Choice Reforms, Economic Journal 121, pp.f Feng, Yan, Michele Pistollato, Anita Charlesworth, Nancy Devlin, Carol Propper and Jon Sussex (2014), Association between market concentration of hospitals and patient health gain following hip replacement surgery, Journal of Health Services Research & Policy, Online First, 11 September, available from accessed 3 November 2014.