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Price adjustment in the hospital sector

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  • Miraldo, Marisa
  • Siciliani, Luigi
  • Street, Andrew

Abstract

Abstract We analyse the properties of optimal price adjustment to hospitals when no lump-sum transfers are allowed and when prices differ to reflect observable exogenous differences in costs. We find that: (a) when the marginal benefit from treatment is decreasing and the cost function is the power function, price adjustment for hospitals with higher costs is positive but partial; if the marginal benefit is constant, the price is identical across providers; (b) if the cost function is exponential or it is separable in monetary and non-monetary costs (and linear in monetary costs), price adjustment is positive even when the marginal benefit is constant; (c) higher inequality aversion of the purchaser increases concentration in prices and lowers concentration in quantities; (d) if some dimensions of costs are private information, a higher correlation between the observable and unobservable cost component increases the optimal price for providers whose observable costs are above the average.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Health Economics.

Volume (Year): 30 (2011)
Issue (Month): 1 (January)
Pages: 112-125

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Handle: RePEc:eee:jhecon:v:30:y:2011:i:1:p:112-125

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Web page: http://www.elsevier.com/locate/inca/505560

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Keywords: Price adjustment Hospitals DRGs;

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References

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  1. De Fraja, Gianni, 2000. "Contracts for health care and asymmetric information," Journal of Health Economics, Elsevier, vol. 19(5), pages 663-677, September.
  2. Ellis, Randall P., 1998. "Creaming, skimping and dumping: provider competition on the intensive and extensive margins1," Journal of Health Economics, Elsevier, vol. 17(5), pages 537-555, October.
  3. Chalkley, M. & Malcomson, J.M., 1995. "Contracting for health services when patient demand does not reflect quality," Discussion Paper Series In Economics And Econometrics 9514, Economics Division, School of Social Sciences, University of Southampton.
  4. Dranove, David & White, William D, 1994. "Recent Theory and Evidence on Competition in Hospital Markets," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 3(1), pages 169-209, Spring.
  5. Hawdon, David & Hunt, Lester & Levine, Paul L & Rickman, Neil, 2005. "Optimal Sliding Scale Regulation: An Application to Regional Electricity Distribution in England and Wales," CEPR Discussion Papers 4934, C.E.P.R. Discussion Papers.
  6. Chalkley, M. & Malcomson, J.M., 1995. "Contracting for health services with unmonitored quality," Discussion Paper Series In Economics And Econometrics 9510, Economics Division, School of Social Sciences, University of Southampton.
  7. Chalkley, Martin & Malcomson, James M., 2002. "Cost sharing in health service provision: an empirical assessment of cost savings," Journal of Public Economics, Elsevier, vol. 84(2), pages 219-249, May.
  8. Siciliani, Luigi, 2006. "Selection of treatment under prospective payment systems in the hospital sector," Journal of Health Economics, Elsevier, vol. 25(3), pages 479-499, May.
  9. Ma, Ching-to Albert, 1994. "Health Care Payment Systems: Cost and Quality Incentives," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 3(1), pages 93-112, Spring.
  10. Léonard,Daniel & Long,Ngo van, 1992. "Optimal Control Theory and Static Optimization in Economics," Cambridge Books, Cambridge University Press, number 9780521331586, October.
  11. Miraldo, Marisa & Siciliani, Luigi & Street, Andrew, 2011. "Price adjustment in the hospital sector," Journal of Health Economics, Elsevier, vol. 30(1), pages 112-125, January.
  12. Baron, David P & Myerson, Roger B, 1982. "Regulating a Monopolist with Unknown Costs," Econometrica, Econometric Society, vol. 50(4), pages 911-30, July.
  13. Mougeot, Michel & Naegelen, Florence, 2005. "Hospital price regulation and expenditure cap policy," Journal of Health Economics, Elsevier, vol. 24(1), pages 55-72, January.
  14. Beitia, Arantza, 2003. "Hospital quality choice and market structure in a regulated duopoly," Journal of Health Economics, Elsevier, vol. 22(6), pages 1011-1036, November.
  15. Jacobs,Rowena & Smith,Peter C. & Street,Andrew, 2006. "Measuring Efficiency in Health Care," Cambridge Books, Cambridge University Press, number 9780521851442, October.
  16. Wagstaff, Adam & van Doorslaer, Eddy, 2000. "Chapter 34 Equity in health care finance and delivery," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 34, pages 1803-1862 Elsevier.
  17. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, December.
  18. Ellis, Randall P. & McGuire, Thomas G., 1986. "Provider behavior under prospective reimbursement : Cost sharing and supply," Journal of Health Economics, Elsevier, vol. 5(2), pages 129-151, June.
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Citations

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Cited by:
  1. Ching-to Albert MA & Henry Y. Mak, 2012. "Information Disclosure and the Equivalence of Prospective Payment and Cost Reimbursement," Boston University - Department of Economics - Working Papers Series WP2012-008, Boston University - Department of Economics.
  2. Miraldo, Marisa & Siciliani, Luigi & Street, Andrew, 2011. "Price adjustment in the hospital sector," Journal of Health Economics, Elsevier, vol. 30(1), pages 112-125, January.
  3. Janueleviciute, Jurgita & Askildsen, Jan Erik & Kaarbøe, Oddvar & Siciliani, Luigi & Sutton, Matt, 2013. "How Do Hospitals Respond To Price Changes?Evidence From Norway," Working Papers in Economics 15/12, University of Bergen, Department of Economics.

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