Is Patient Data Better Protected in Competitive Healthcare Markets?

We study the effect of hospital market concentration on the quality of patient data protection practices. We use approximately 200 reported data breaches in US hospitals over the period 2006 - 2011 as a measure of the quality of patient data protection practices. We measure market concentration using the Herfindahl-Hirschman Index (HHI) and estimate our models by exploiting cross-sectional HHI variation. Surprisingly, we find that increased competition is associated with a decline in the quality of patient data protection. Our main result indicates that a 100 point increase in HHI is associated with a 5% decline in the average count of data breach incidents. The results are directionally robust to a number of alternate model specifications. To explain our findings, we posit that hospitals in more competitive markets may be inclined to shift resources to more consumer visible activities from the less consumer visible activity of data protection.