The Impact of Public Healthcare Program on Hospital Hospitality: Evidence from Indonesia Healthcare Program

Hospitals worldwide are increasingly competing for patients by providing hotel-like services. This focus on hospital accommodations increases healthcare expenditures, with inconclusive benefits for real health outcomes. To examine how public health insurance expansion affects both welfare and the cost-effectiveness of healthcare delivery related to hospital accommodations, we perform a case study on selection in terms of tastes, prices, and health benefits of hospital accommodations using a natural experiment of two hospitals in Indonesia, one providing high-quality, hotel-like services and the other utilitarian services. We use an implementation of a universal healthcare insurance program in Indonesia that has expanded health insurance coverage but limits patients to lower-quality hospital accommodations. We find that on the intensive margin, patients who continue visiting the high-quality hospital have higher tastes for accommodations. Due to the imperfect-competition market structure, high-quality hospitals can raise prices and price discriminate better against these patients. On the extensive margin, some patients switch from the high-quality to utilitarian hospitals, lowering expenses on hospital accommodations. Hence, we conclude that patient tastes for hospital accommodations have introduced income redistribution in addition to that of the standard taxation mechanism. We also find that conditional on the high quality hospital, spending on amenities leads to only a minimal improvement in health outcomes, and expenditures on amenities are reduced by 7.27%. Thus, in our case study, public health insurance expansion has improved the cost effectiveness of healthcare delivery related to hospital accommodations. These results warrant future research on hospital amenities with more comprehensive data to establish broader policy consequences.