Quality competition among hospitals, induced by patients freely choosing their hospital in a price regulated market, can only be realized if quality differences between hospitals are transparent, understandable, and thus influence patients ’ hospital choice. We use data from ~145,000 German patients and ~ 900 hospitals for colorectal resections and knee replacements to investigate whether patients value quality and specialization when choosing their hospital. Using a random utility choice model, we estimate patients ’ marginal utilities, willingness to travel and change in hospital demand for quality improvements. Patients respond to service quality and specialization and thus, quality competition seems to be present. Colorectal resection patients are willing to travel longer for more specialized hospitals (+9% for procedure volume, +9% for certification). Knee replacement patients travel longer for hospitals with better service quality (+6%) and higher procedure volume (+12%). However, clinical quality indicators, often difficult to access and interpret, barely play a role in patients ’ hospital choice. Furthermore, we find that competition on quality for colorectal resection is rather local, whereas for knee replacement we observe regional competition patterns.