This study examines how demand shocks affect product quality in the context of U.S. hospitals. Leveraging the staggered adoption of Paid Sick Leave (PSL) mandates as a positive shock to healthcare demand, we document significant improvements in hospital healthcare quality following PSL implementation. Mechanism analysis shows that PSL-induced demand improves hospitals' financial conditions, which in turn reduces borrowing costs, increases investment, and decreases the risk of closure. These quality effects are more pronounced among hospitals with lower internal liquidity, limited external financial support, weaker profit incentives, and stronger governance structures, highlighting the role of financial constraints in mediating the impact of demand shocks. Overall, our findings underscore that positive demand shocks can enhance product quality by relaxing financial constraints and demonstrate the broader spillover effects of labor market policies on the performance and resilience of the hospital sector.