Health Care Providers Payments Regulation when Horizontal and Vertical Differentiation Matter
AbstractThis paper analyzes the regulation of payment schemes for health care providers competing in both quality and product differentiation of their services. The regulator uses two instruments: a prospective payment per patient and a cost reimbursement rate. When the regulator can only use a prospective payment, the optimal price involves a trade-off between the level of quality provision and the level of horizontal differentiation. If this pure prospective payment leads to underprovision of quality and overdifferentiation, a mixed reimbursement scheme allows the regulator to improve the allocation efficiency. This is true for a relatively low level of patients’transportation costs. We also show that if the regulator cannot commit to the level of the cost reimbursement rate, the resulting allocation can dominate the one with full commitment. In particular, some cost reimbursement might be optimal even for higher levels of transportation costs.
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Bibliographic InfoPaper provided by Toulouse School of Economics (TSE) in its series TSE Working Papers with number 10-164.
Date of creation: Mar 2010
Date of revision:
Other versions of this item:
- Bardey, David & Canta, Chiara & Lozachmeur, Jean-Marie, 2010. "Health Care Providers Payments Regulation when Horizontal and Vertical Differentiation Matter," IDEI Working Papers 532, Institut d'Économie Industrielle (IDEI), Toulouse.
- I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-10-02 (All new papers)
- NEP-COM-2010-10-02 (Industrial Competition)
- NEP-HEA-2010-10-02 (Health Economics)
- NEP-REG-2010-10-02 (Regulation)
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