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Do Report Cards Tell Consumers Anything They Don’t Already Know? The Case of Medicare HMOs (WP-06-02)

Leemore Dafny and David Dranove

The use of government-mandated report cards to diminish uncertainty about the quality of various products and services is widespread. However, report cards will have little effect if they simply confirm consumers’ prior beliefs. Moreover, documented “responses” to report cards might reflect learning about quality that would have occurred in their absence. Using panel data on Medicare HMO market shares between 1994 and 2002, the authors examine the relationship between enrollment and quality before and after report cards were mailed to 40 million Medicare beneficiaries in 1999 and 2000. They find evidence for both market-based and report-card-induced learning. The authors estimate the report-card effect on enrollment in the two years following their release to be approximately equal to that of cumulative market learning between 1994 and 2002. The report-card effect is entirely due to beneficiaries’ response to consumer satisfaction scores; other reported quality measures—such as the mammography rate—did not affect enrollment.

Leemore Dafny, Assistant Professor of Management and Strategy, Kellogg School of Management and Institute for Policy Research, Northwestern University; and NBER

David Dranove, Professor of Management and Strategy,Kellogg School of Management and Institute for Policy Research,  Northwestern University

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