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.
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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number
2491.
Find related papers by JEL classification: I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Dixit, Avinash K, 1986.
"Comparative Statics for Oligopoly,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(1), pages 107-22, February.
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