Working Paper: CEPR ID: DP2491
Authors: Pedro Pita Barros; Xavier Martinez-Giralt
Abstract: One of the mechanisms that is implemented in the cost containment wave in the health-care sectors in western countries is the definition, by the third-party payer, of a set of preferred providers. The insured patients have different access rules to such providers when ill. The rules specify the co-payments patient must pay when using an out-of-plan care provider. We propose to study the competitive process among providers in terms of both prices and qualities. Competition is influenced by the status of providers as in-plan or out-of-plan care providers. Also, there is a moral hazard of provider choice related to the trade-off between freedom to choose and the need to hold down costs. Our main findings are that we can define a reimbursement scheme when decisions on prices and qualities are taken simultaneously (that we relate to primary health-care sectors) such that the first-best allocation is achieved. In contrast, some type of regulation is needed to achieve the optimal solution when decisions are sequential (specialized health-care sector). We also derive some normative conclusions on the way price controls should be implemented in some European Union Member States.
Keywords: mixed oligopoly; health care
JEL Codes: I11; I18
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Reimbursement scheme (H55) | Pricing and quality decisions of healthcare providers (I11) |
| Fixed copayment rules (I18) | Optimal pricing and quality levels (L15) |
| Regulation (L51) | Optimal outcomes in specialized healthcare sector (I11) |
| Reimbursement structure (M52) | Degree of competition among providers (L13) |
| Degree of competition among providers (L13) | Pricing and quality decisions of healthcare providers (I11) |