Is the hospital decision to seek accreditation an effective one?

THE INTERNATIONAL JOURNAL OF HEALTH PLANNING AND MANAGEMENT

Int J Health Plann Mgmt 2015; 30: E56–E68. Published online 3 December 2014 in Wiley Online Library (wileyonlinelibrary.com) DOI: 10.1002/hpm.2263

Is the hospital decision to seek accreditation an effective one? Sverre Grepperud* Department of Health Management and Health Economics, University of Oslo, Oslo, Norway

SUMMARY The rapid expansion in the number of accredited hospitals justifies inquiry into the motives of hospitals in seeking accreditation and its social effectiveness. This paper presents a simple decision-theoretic framework where cost reductions and improved quality of care represent the endpoint benefits from accreditation. We argue that hospital accreditation, although acting as a market-signaling device, might be a socially inefficient institution. First, there is at present no convincing evidence for accreditation causing output quality improvements. Second, hospitals could seek accreditation, even though doing so is socially inefficient, because of moral hazard, consumer misperceptions, and nonprofit motivations. Finally, hospitals that seek accreditation need not themselves believe in output quality improvements from accreditation. Consequently, while awaiting additional evidence on accreditation, policy makers and third-party payers should exercise caution in encouraging such programs. Copyright © 2014 John Wiley & Sons, Ltd. KEY WORDS: market signaling; market imperfections; certification; consumer misperceptions; moral hazard

We can classify institutions designed to promote and ensure healthcare quality into different groups. First, there are various self-regulation initiatives, including norms, professionalism, the development of clinical guidelines, and internal and external peer reviews. Second, there is the application of economic incentives, such as market competition combined with quality information (report cards) and third-party payerdriven competition where reimbursement is conditional upon quality performance. Finally, there are various regulatory policies based on law including licensure, tort law (liability), and a variety of audit (inspection) systems. In addition to these institutions, there is accreditation of healthcare services—a process by which some agency or organization evaluates and recognizes that some other organization meets certain professional standards.1 *Correspondence to: S. Grepperud, Department of Health Management and Health Economics, University of Oslo, Oslo, Norway. E-mail: [email protected] 1 Scrivens (1995a) defines accreditation as the process of evaluating the functioning of healthcare organizations, whereas Bohigas and Heaton (2000) regard accreditation as a method for the external evaluation of healthcare organizations.

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EFFECTIVENESS OF HOSPITAL ACCREDITATION

The business of hospital accreditation has expanded rapidly in the last few decades (Heidemann, 1999; De Walcque et al., 2007; Shaw et al., 2010, 2013). A global study for the World Health Organization (WHO) identified 36 nationwide programs, with their number doubling every 5 years since 1990 (Shaw, 2003). As many as 30 Asian hospitals were accredited by 2007 (Tandulwadikar and Chigullapalli, 2007). Medical tourism especially has played a catalytic role, with private sector hospitals in India, China, and Singapore aggressively pursuing accreditation. In the USA, where accreditation is a requirement for reimbursement by public health programs (Medicare and Medicaid), more than 85% of the hospitals are accredited (Sprague, 2005). Accreditation first began as a peer review exercise early in the 20th century when no systematic evaluation was taking place in healthcare but is now a tool for organizational development and the communication of success to the outside world (Scrivens, 1995b; Shaw, 2006). More recently, we have witnessed that health service accreditation programs in Europe have become increasingly regulatory and governed by a range of stakeholders, including government, suggesting that accreditation is moving toward a semiregulatory model of external assessment (Scrivens, 1995b, 1997; Shaw et al., 2010). In the next section, we will present evidence on possible endpoint benefits from hospital accreditation; thereafter, the role of hospital accreditation as a marketsignaling device is discussed, and finally, we apply a simple decision-theoretic model to analyze when the hospital decision to accredit is a socially efficient one. HOSPITAL ACCREDITATION: ENDPOINT BENEFITS AND EVIDENCE It is not straightforward to characterize the hospital accreditation business as comprising various schemes of different scopes and scales. The content of the various programs may depend on how they interact with law and regulation and how the healthcare system is organized. In less-developed economies, for example, the focus is more on establishing basic functions and not so much on evaluation and improvement. Dybkaer (1994) distinguishes between professional and governmental accreditation schemes, where the former are typically programs under nongovernmental bodies formed by healthcare professionals, whereas the latter are usually officially certified accreditation bodies operating according to certain rules assessed by an external authority. In general, accreditation has the following characteristics: (i) has two focus areas; (ii) includes a two-step process; and (iii) is concerned with some common themes. The two focus areas are management (administrative processes) and output development (product processes). The first step concerns the design of standards, whereas the second step is actual measurement relative to the same standards.2 The six common themes of accreditation standards are management, patient rights, patient safety, clinical organization, clinical practice, and environmental safety. Becoming certified requires an organization to demonstrate that it employs a specific set of management practices and/or fulfills certain prespecified standards. A third party (assessors), often healthcare professionals, verifies the fulfillment of standards. An 2

Dybkaer (1994) considers standards as a description of quality system objectives, whereas Vallejo et al. (2011) regard them as statements that define performance expectations and/or structures and processes that must be in place for a hospital to provide safe quality care. Copyright © 2014 John Wiley & Sons, Ltd.

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important dimension of accreditation is the focus on structure (the availability of facilities) and process (the converting of inputs to outputs) rather than output improvements (Griffith et al., 2002). This makes accreditation somewhat different from recent health quality initiatives where direct measurement of output performance has been important (e.g., the development of quality indicators and report cards). The literature on accreditation claims many benefits from hospital accreditation including increased accountability, improved staff motivation, greater consistency, less waste, financial impacts, public disclosure, professional development, and patient satisfaction. However, many of these can best be characterized as measures or strategies chosen to achieve certain endpoint benefits. A natural requirement for being an endpoint benefit is that compliance with the given accreditation standards creates values for the owners of the accredited organizations. Two promising candidates in this respect are cost reductions and output quality improvements. Cost reductions are achieved through improved processes and the fulfillment of standards, inducing a better use of resources (e.g., manpower) and lower service failure, meaning that the same quantity (quality) of services can be produced at lower cost (improved cost efficiency). Cost reductions are beneficial for society and beneficial for hospital owners because additional resources become available. The second endpoint benefit, output quality improvement, represents the value added to the services produced and include all quality aspects considered valuable by (fully informed) consumers such as clinical quality, bedside manner, facilities, and provider–patient communication. Being certified informs purchasers of hospital services about certain standards being fulfilled, if the purchasers value accredited hospitals more highly than unaccredited ones, there will be a shift in demand in favor of the accredited ones that again generates benefits for the owners in terms of a higher market share. Output quality improvements are also valuable to society. Empirical studies on the possible impacts from hospital accreditation use different quality indicators including clinical ones such as mortality, complications, and adverse events. In what follows, we refer to some findings from this literature. Griffith et al. (2002) and Barker (2002) found no correlation between accreditation and general hospital mortality and rates of medication. Chen et al. (2003) revealed ample evidence that hospitals rapidly increase compliance with the standards in the months prior to external assessment. They conclude that some quality aspects are higher for accredited hospitals, but it is unknown whether this association follows from self-selection effects. Greenfield and Braithwaite (2008) focused on the possible impacts of accreditation in 10 different areas and found a consistent positive association for only two (promoting change and professional development). Lutfiyya et al. (2009) compared rural critical access hospitals in the USA and found that accredited hospitals did better on four of 16 clinical indicators but noted that self-selection and motivation could explain much of the difference. Shaw et al. (2010) concluded that safety structures and procedures are more evident in hospitals with external assessments (certified hospitals). Additionally, there are several literature reviews (qualitative and systematic) available all stating that there is no convincing evidence on accreditation causing output quality improvements (Øvretveit, 2001; Shaw, 2006; Nicklin and Dickson, 2009; Vist et al., 2009; Braithwaite et al., 2010; Al-Awa et al., 2011; Alkhenizan and Shaw, 2011; Hinchcliff et al., 2012). Finally, there are Copyright © 2014 John Wiley & Sons, Ltd.


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studies concerned with associations between accreditation and patient satisfaction. These studies find that accreditation does not link to any measureable improvement in the quality of care as perceived by patients (Heuer, 2004; Fong et al., 2008; Sack et al., 2010; Sack et al., 2011). The main impression from the literature on accreditation is that hospitals, to some extent, change behavior in preparation for accreditation (e.g., organizational changes and better compliance with guidelines and standards), but there is no evidence for accreditation causing output quality improvements.

IS ACCREDITATION AN EFFECTIVE MARKET-SIGNALING DEVICE? In an economy with perfectly informed purchasers, we expect that for-profit producers provide the socially desirable levels of quality. In situations where product quality is unobservable at the time of purchase, inefficiency problems may arise, and various regulatory measures can be introduced to stimulate producers to improve quality. Spence (1977) refers to three types of regulatory measures: (i) regulating the product; (ii) informing consumers to reduce misperceptions; and (iii) imposing liability above the levels of quality that are voluntarily taken. In addition, the inefficiency problems can be mitigated by initiatives from the market itself. One such initiative is when producers convey information about own products to potential consumers (market signals). An effective market signal is a voluntary costly investment that succeeds in informing consumers about who are the sellers of products of above-average quality (it reveals their true type). High-quality producers invest resources into activities that, at least in the eyes of consumers, separate them from low-quality producers (Kirmani and Rao, 2000). For signaling to be effective, it must be credible in the sense that low-quality producers cannot “mimic” the signals of high-quality producers without imposing greater costs. In the absence of effective signals, the incentive for high-quality firms to continue to produce high-quality goods decreases as their products are perceived as being identical to products of a lower quality (Riley, 2001). Spence (1974) defines market signals as activities or attributes of individuals in a market, which, by design or accident, alter the beliefs of, or convey information to, other individuals. According to Spence (1974), the purchase of a good or service, in the presence of imperfect information, represents a lottery for the buyer, a chance to receive one of a collection of payoffs, rewards, or consequences. Market signals affect such lotteries by altering some observable characteristics, thus becoming devices that change subjective probabilistic beliefs about the quality of goods or services (Spence, 1976).3 Important market signals are advertisements and warranties. Producers of highquality products invest in advertising and issue warranties to encourage consumers to try their products. Consumer experiences confirm quality and thus make repeated purchases likely. Warranties also serve as signals of desirable properties for durable goods (one-time purchases). Accreditation as a market signal differs from advertisements and 3

Spence (1974, p. 7), when discussing the presence of uncertainty and lotteries in various markets, also includes healthcare: “And the layman who purchases the services of a doctor has very little notion of the precise quality of the service.” Copyright © 2014 John Wiley & Sons, Ltd.


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warranties in two respects. First, for accreditation to be effective, it requires verification from an external organization. Second, the information conveyed is not about product quality but about improvements in structure and process quality. Accreditation may have more in common with another market signal: education. Education, as with accreditation, depends on an independent third party to verify (diplomas) the fulfillment of certain standards (degrees), whereas output performance (labor productivity) is not verified.4 The difference between hospital accreditation and advertisements/warranties as market signals seems to follow from informational differences. Warranties and advertisements are typically observed for goods and services for which the true quality can be learned from consumption (experience goods); thus, external assessors are not needed. For healthcare services, on the other hand, some quality aspects cannot be learned from consumption (credence goods); thus, external assessors are needed. However, the quality of healthcare services can be difficult to observe, even for the assessors, necessitating a focus on what actually is observable to them, namely standards and processes. The theory on market signals predicts that only high-quality producers will seek accreditation because accreditation is too costly to achieve for low-quality producers. This prediction has several implications. First, voluntary accreditation enables buyers to differentiate between producers on the basis of quality. Second, research on accreditation must always take into account the possibility of self-selection effects. Third, for situations where most hospitals are accredited (e.g., mandatory accreditation programs), accreditation ceases to act as an effective market signal.

THE HOSPITAL DECISION TO SEEK ACCREDITATION The lack of evidence on hospital accreditation causing output quality improvements raises some questions: (i) why do an increasing number of hospitals voluntary undergo accreditation; (ii) why do governments implement mandatory accreditation programs; and (iii) why do sickness funds (health plans) require accreditation for hospitals to become eligible for their members? One possibility is that hospitals, governments, and sickness funds act upon knowledge of a less systematic character, such as experience-based knowledge, anecdotal evidence, and conventional wisdom. Another possibility is that hospitals seek accreditation even if they do not believe that accreditation has output quality-improving effects. These are questions that will be addressed by using a simple decision-theoretic framework that includes three characteristics of healthcare markets being relevant when accreditation is the topic of interest. First, we allow for healthcare demanders to be mistaken about the true output quality effect (consumer misperceptions). Second, individuals have health insurance; thus, at the point of consumption, they do not pay the full price of the consumed services. Third, we consider hospitals that are for-profit organizations and hospitals that are nonprofit organizations. The important distinction of the nonprofit hospital is the no-distribution constraint meaning that no one has a legal claim on the difference between revenues and costs 4

For more on job market signaling, see Spence (1973).




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(Folland et al., 2010). Nonprofit hospitals are common in many healthcare systems. In the USA, 60% of the community hospitals are nonprofit hospitals, whereas in national health systems (Great Britain and the Nordic countries), the share is close to 100% (Sloan and Hsieh, 2012). Suggested reasons for the prevalence of nonprofit hospitals are their public good characteristics (Weisbrod, 1988) and contract failure (Arrow, 1963; Hansmann, 1980). The empirical literature on hospital ownership is primarily concerned with identifying performance outcomes that systematically differ among private nonprofit hospitals, for-profit hospitals, and government-owned hospitals. Shen et al. (2007) discuss evidence on ownership and financial performance (cost, revenue, profit, and efficiency). Sloan (2000); Needleman (2001), Rosenau and Linder (2003), and Schlesinger and Gray (2006) present qualitative literature reviews on ownership and quality performance, whereas Devereaux et al. (2002) and Eggleston et al. (2008) undertake systematic literature reviews (meta-analyses) on the same topic. Eggleston et al. (2008) includes 31 studies using mortality, complications/medical errors, or both as quality indicators. Their conclusions depend on data sources, period, and region covered. For studies representative of the USA, there is a tendency to a lower quality among for-profit hospitals than private nonprofits. None of the aforementioned studies, however, looks at ownership and the decision to seek accreditation. Before analyzing the accreditation decision of for-profit and nonprofit hospitals, we introduce some assumptions: accreditation may or may not transform into output quality improvements and cost reductions; hospitals (for-profit and nonprofit) compete for patients and are reimbursed on a per-patient basis (activity based) through out-of-pocket payments (for uninsured patients) or by third-party payers (for insured patients). Let QT denote the true output quality improvements that follow from accreditation, whereas QP are patient perceptions (beliefs) about such improvements. Being certified will increase the demand for hospital services if QP > 0, and thus, increase hospital revenues. Let R be the (discounted) change in a hospital’s revenues from being accredited and C the (discounted) change in a hospital’s costs from being accredited (accreditation investments costs), where C = K + k s. Here, k is the (discounted) increase in costs associated with maintaining a higher future process quality (additional resources needed in every future period), and s is the decrease in (discounted) future operating costs because of improved process quality. Thus, a positive value of s means that the hospital has learned from the accreditation process to save on resources (less wastage). Finally, K represents the upfront payments needed for accreditation. Examples are consultancy services, compensations to the accrediting body, and internal resource use. As an example, Staines (2000) considered the process associated with ISO accreditation of a small Swiss hospital and found that it equated to 3 years of fulltime staff member work. In addition, there are additional costs arising from necessary inputs into this process by hospital physicians and nursing staff. The case of for-profit hospitals A for-profit hospital will seek accreditation if expecting the future revenues from obtaining a certificate (R) to exceed or be equal to the accreditation investment costs (C). This investment rule, in the following termed the for-profit investment Copyright © 2014 John Wiley & Sons, Ltd.


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rule, is presented in Box 1 (Equation (1)). According to this rule accreditation must be self-financing; that is, accreditation at least generates revenues that cover the accreditation investment costs. It follows that a hospital might seek accreditation also when the hospital revenues are unaffected by being accredited (R = 0). This will occur if the future cost reductions are sufficiently high (K + k ≤ s ⇒ C ≤ 0).5 In what follows, we compare the for-profit investment rule with the social investment rule. Such a comparison makes it possible to assess whether the hospital decision to seek accreditation is an efficient decision or not. The social investment rule is presented in Box 1 (Equation (2)) and says that the patient valuations of the true quality improvements that follow from accreditation, W(QT), must exceed or be equal to the accreditation investment costs, C. We observe from Equation (2) that a true output quality improvement from accreditation, QT > 0 ⇒ W(QT) > 0, is not a sufficient condition for accreditation to be socially effective as accreditation investment costs also must be considered. Box 1: FOUR INVESTMENT RULES THE FOR-PROFIT INVESTMENT RULE: C ¼ K þks≤R

(1)

THE SOCIAL INVESTMENT RULE: C ¼ K þ k s ≤ W ðQ T Þ

(2)

THE NONPROFIT INVESTMENT RULE (NO ACCESS TO PRIVATE FUNDS): U > 0 and C ¼ K þ k s ≤ R (3) THE NONPROFIT INVESTMENT RULE (ACCESS TO PRIVATE FUNDS): U>0 (4)

A first observation when comparing the private and social investment rules (Equations (1) and (2)) is that the two rules are similar for perfectly informed patients without health insurance. Thus, for these assumptions, a for-profit hospital’s decision to seek, or not seek, accreditation will be a socially efficient decision. The reason for this is that perfectly informed patients paying the full cost of healthcare services will compensate accredited hospitals for their accreditation investment costs only if their valuation of the true quality improvements is equal to (or greater than) the same costs. A second observation is that the two investment rules differ under five sets of conditions (cases), each corresponding to a particular market imperfection or a combination of market imperfections. The five cases are presented in Box 2. 5 Such cost reductions, however, can be achieved without going through the trouble of obtaining certification, as standards are public information and consultancy firms available to aid the adoption-effective practices. This suggests that the main motive for for-profit hospitals is a higher market share (premiums) and not cost reductions.




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Box 2: FIVE CASES FOR WHICH THE DECISION TO BE ACCREDITED OR NOT BECOMES SOCIALLY INEFFICIENT: For-profit hospitals and nonprofit hospitals (without access to private funds) for C > 0 CASE A: INSURANCE AND PERFECTLY INFORMED (QP = QT): If C > W(QT) = W(QP) > 0 CASE B: WITHOUT INSURANCE AND UNDERVALUATION OF ACCREDITATION (QP < QT): If W(QT) ≥ C > W(QP) ≥ 0 CASE C: INSURANCE AND UNDERVALUATION OF ACCREDITATION (QP < QT): If C > W(QT) > W(QP) > 0 CASE D: WITHOUT INSURANCE AND OVERVALUATION OF ACCREDITATION (QP > QT): If W(QP) ≥ C > W(QT) ≥ 0 CASE E: INSURANCE AND OVERVALUATION OF ACCREDITATION (QP > QT): If W(QP) ≥ C > W(QT) ≥ 0 or C ≥ W(QP) > W(QT) ≥ 0 Case A arises because of health insurance only, as insured patients demand services from accredited hospitals as long as the perceived value of accreditation is positive (ex post moral hazard): W(QP) > 0.6 Cases B and D arise because of patient misperceptions about the true output quality effects from accreditation (undervaluation or overvaluation). Cases C and E arise because of a combination of health insurance (ex post moral hazard) and patient misperceptions. On the basis of the five cases, three conclusions follow. First, of the five cases, four (Cases A, C, D, and E) concern the situation where hospitals seek accreditation even though doing so is socially inefficient (Type I error), while the remaining case (B) concerns the situation when hospitals do not seek accreditation when doing so is socially efficient (Type II error). Second, all five cases might occur also when accreditation has true output quality-improving effects. Third, the hospital decision to seek accreditation does not depend crucially on its own beliefs concerning output quality improvements. For-profit hospitals seek accreditation when it is profitable to do so, and a necessary condition for this to be the case is that the purchasers of hospital services believe in such improvements. 6

Patients without health insurance demand services from accredited hospitals only if the perceived value of accreditation exceeds accreditation investment costs: W(QP) ≥ C. Copyright © 2014 John Wiley & Sons, Ltd.


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The case of nonprofit hospitals Nonprofit hospitals can be privately or publicly owned; obtain revenues from different sources, such as budgets, donations, and sales; and operate in very different institutional contexts. For these reasons, no single model is likely to explain hospital behavior fully. Early works on nonprofit hospitals were concerned with motives related to hospital size. Examples are the output-maximization model (Rice, 1966; Brown, 1970), the revenue-maximization model (Finkler, 1983), and models assuming preferences for both quantity (the number treated) and quality (Newhouse, 1970). Lee (1971) argues in favor of hospital administrators maximizing own prestige and power, whereas Pauly and Redisch (1973) argue in favor of physician staff maximizing own net incomes. More recent approaches define hospital preferences over some type of financial surplus (profits and slack) and an additional dimension, typically quantity, patient well-being (altruism), or quality. For instance, Ellis and McGuire (1990) and Lakdawalla and Philipson (2006) are concerned with the mix of altruism and profit motives, Hodgkin and McGuire (1994) address the mix of quality and profits, and Chalkley and Malcomson (2000) consider the mix of budget slack and quantity.7 In what follows, we focus on nonprofit hospitals that are either altruistic, status orientated, or concerned with quantity (quantity orientated). Altruistic hospitals consider the utility of the patients they treat, and here, we focus on genuine altruism, implying that the hospitals evaluate the preferences of their patients at the patients’ perceived value of accreditation. The second type of motivation considered (social status and prestige) assumes that accreditation itself adds to hospital utility (e.g., improved recognition in the medical community). The third type of motivation is concerned with hospital size, in the sense that additional patients add to hospital utility. The three types of hospital motivations are presented in Box 3. Box 3: THREE TYPES OF HOSPITAL MOTIVATIONS (U is the utility of a nonprofit hospital): (I) ALTRUISTIC HOSPITALS: U = W(QP) (II) STATUS-ORIENTATED HOSPITALS: U > 0 if being accredited. (III) QUANTITY-ORIENTATED HOSPITALS: U = n, where n is the increase in the number of patients that follows from being accredited. Consider nonprofit hospitals that do not have access to private funds (e.g., in terms of own savings or donations) that can be used to cover all accreditation investment costs. In this case, the investment rule consists of two conditions that must be fulfilled before deciding to seek accreditation (Equation (3) in Box 1). The first condition is that hospital utility must increase in response to being accredited, whereas the second one is the forprofit investment rule already discussed earlier.8 It follows that the private and social investment rules (Equations (2) and (3)) differ under the exact same conditions as mattered for for-profit hospitals (Box 2). The reason lies with the fact that both types of 7 8

See Eggleston et al. (2008) for additional references on nonprofit hospital motivations. For for-profit hospitals, U = Π, and Π is positive when the for-profit investment rule is satisfied.



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hospitals must obey the same rule: the for-profit investment rule. Because accreditation must be self-financing for nonprofit hospitals without access to private funds, the necessary condition for such hospitals to seek accreditation is that the purchasers of healthcare services believe in output quality improvements from accreditation. Consider nonprofit hospitals that have access to their own savings and/or are able to raise donations to finance own accreditation investment costs. Such hospitals can ignore the for-profit investment rule, and the only remaining condition is now that hospital utility must increase in response to becoming accredited (Equation (4) in Box 1). The private and social investment rules (Equations (2) and (4)) now differ for six cases (sets of conditions; Box 4). If the cases of Box 4 are compared with those of Box 2, it follows that three cases are the same (A, C, and E), two cases change (B and D), and a new case is introduced (F). Case B has become equal to Case C, meaning that Type II errors no longer are possible outcomes. Case D has changed and is equal to Case E, meaning that Type I errors have become more likely. The new case (Case F) refers to the situation of perfectly informed patients without health insurance seeking accreditation even though doing so is socially inefficient (Type I error). Box 4: SIX CASES FOR WHICH THE DECISION TO BE ACCREDITED OR NOT BECOMES SOCIALLY INEFFICIENT: nonprofit hospitals (with access to private funds) for C > 0. CASE A: INSURANCE AND PERFECTLY INFORMED (QP = QT): If C > W(QT) = W(QP) > 0 CASE B: WITHOUT INSURANCE AND UNDERVALUATION OF ACCREDITATION (QP < QT): If C > W(QT) > W(QP) > 0 CASE C: INSURANCE AND UNDERVALUATION OF ACCREDITATION (QP < QT): If C > W(QT) > W(QP) > 0 CASE D: WITHOUT INSURANCE AND OVERVALUATION OF ACCREDITATION (QP > QT): If W(QP) ≥ C > W(QT) ≥ 0 or C ≥ W(QP) > W(QT) ≥ 0 CASE E: INSURANCE AND OVERVALUATION OF ACCREDITATION (QP > QT): If W(QP) ≥ C > W(QT) ≥ 0 or C ≥ W(QP) > W(QT) ≥ 0 CASE F: WITHOUT INSURANCE AND PERFECTLY INFORMED (QP = QT): If C > W(QT) = W(QP) > 0 Copyright © 2014 John Wiley & Sons, Ltd.


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The preceding changes show that nonprofit hospitals with the capacity to ignore the self-financing requirement have strong incentives to seek accreditation when doing so is socially ineffective. The opportunity to ignore this requirement, however, does not mean that such hospitals will not pay attention to the beliefs in output quality effects from accreditation among the purchasers of healthcare services. Remember, altruistic hospitals seek accreditation only if their patients believe in such effects, whereas quantity-orientated hospitals seek accreditation only if the number of treated patients increases in response to accreditation. Status-orientated hospitals, on the other hand, need not pay attention to such concerns.

CONCLUDING REMARKS Hospital accreditation has strengthened its position in recent decades. We observe that accrediting bodies promote accreditation, that many healthcare demanders and purchasers prefer accredited hospitals to unaccredited ones, and that hospitals (both for-profits and nonprofits) respond by pursuing accreditation. This development is somewhat surprising in view of the lack of evidence on output quality improvements from accreditation. For these reasons, more research on why hospitals seek accreditation and whether such decisions are socially efficient is important. In this analysis, we have identified when hospitals’ decision to seek, or not seek, accreditation is a socially inefficient decision. The contributing factors to socially inefficient outcomes are consumer misperceptions, ex post moral hazard (health insurance), nonprofit motivations, or combinations of all three. The hospital incentive to seek accreditation, when doing so is socially inefficient, is the same for for-profit hospitals and nonprofit hospitals without access to private funds. This incentive, however, becomes stronger for nonprofit hospitals with access to private funds. We find that three of the hospital types considered (for-profits, altruistic nonprofits, and quantity-orientated nonprofits) need not believe in output quality-improving effects from accreditation to actually seek accreditation. The necessary condition for all three types is that the demanders of healthcare services believe in such effects. For the fourth hospital type (status-orientated nonprofits), this is not the case. In this paper, we do not explicitly discuss the various roles third-party payers may play. One example is the possibility that social insurance programs, sickness funds, health plans, or large employers restrict own enrollees’ access to unaccredited hospitals (restricted choice). However, our decision-theoretic framework, in the absence of health insurance, might be used for such an analysis. Now, the “hospital,” taken to be a sickness fund, decides on a “restricted choice or not,” whereas “patients,” taken to be the potential enrollees, decide to join a sickness fund with “restricted choice” or not. The decision to make a “restricted choice” then becomes profitable only if the enrollees are willing to pay the increases in premiums that accompany such a choice. Our analysis supports the following notions: (i) the hospital decision (for-profit and nonprofit) to seek accreditation should not be left to the market alone; (ii) an increasing number of hospitals seeking accreditation in itself provide no support for accreditation being a socially desirable institution; and (iii) some type of Copyright © 2014 John Wiley & Sons, Ltd.



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intervention or regulation of the accreditation industry is justified. Besides the question of whether accredited and unaccredited hospitals differ, future research should also consider how the hospital accreditation decision depends on competition, the regulatory environment, and the presence of alternative methods for evaluating hospital performance.

CONFLICT OF INTEREST The authors have no competing interests.

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