Privatization reform in public healthcare system: Competition vs. collaboration

Privatization reform is increasingly considered as an efficient mechanism to reduce waiting time in the public healthcare system. This article focuses on two popular privatization reform formats: (i) the competition format, under which the private hospital is allowed to enter the market and compete with the public hospital, and (ii) the collaboration format, under which the public hospital and private hospital collaborate toward a common goal. We investigate the adverse impacts of the two formats on patients and social welfare, which depend on two key factors: (i) the reimbursement rate that determines to what extent the government can provide capital support to the public hospital, and (ii) the privatization level that reflects to what extent the joint public–private hospital provides care for its own profit. When both the reimbursement rate and privatization level are relatively high, the private hospital prefers the collaboration format. We also identify two separate regions wherein the private hospital’s interest can be aligned with patients and social welfare: (i) the competition format arises when the reimbursement rate is high and the privatization level is low, and (ii) the collaboration format arises when the reimbursement rate is moderate and the privatization level is high.