Hospitals as Hotels

Amenities such as good food, attentive staff, and pleasant surroundings may play an important role in hospital demand. The authors use a marketing survey to measure amenities at hospitals in greater Los Angeles and analyze the choice behavior of Medicare pneumonia patients in this market. The authors find that the mean valuation of amenities is positive and substantial. From the patient perspective, hospital quality therefore embodies amenities as well as clinical quality. They also find that a one-standard-deviation increase in amenities raises a hospital's demand by 38.4% on average, whereas demand is substantially less responsive to clinical quality as measured by pneumonia mortality. These findings imply that hospitals may have an incentive to compete in amenities, with potentially important implications for welfare.