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Hospital Competition under Regulated Prices: Application to Urban Health Sector Reforms in China

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  • Karen Eggleston
  • Winnie Yip

Abstract

We develop a model of public-private hospital competition un- der regulated prices, recognizing that hospitals are multi-service Þrms and that equilibria depend on the interactions of patients, hospital administrators, and physicians. We then use data from China to calibrate a simulation model of the impact of China?s recent payment and organizational reforms on cost, quality and access. Both the analytic and simulation results show how provid- ing implicit insurance through distorted prices leads to over/under use of services by proÞtability, which in turn fuels cost escalation and reduces access for those who cannot a?ord to self-pay for care. Hospital competition for patients will improve social welfare only if policymakers pay careful attention to payment incentives and regulation.

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Paper provided by Department of Economics, Tufts University in its series Discussion Papers Series, Department of Economics, Tufts University with number 0401.

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Date of creation: 2004
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Handle: RePEc:tuf:tuftec:0401

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  1. 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.
  2. Joseph P. Newhouse, 2004. "Pricing the Priceless: A Health Care Conundrum," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262640589, December.
  3. S. Baranzoni & P. Bianchi & L. Lambertini, 2000. "Market Structure," Working Papers 368, Dipartimento Scienze Economiche, Universita' di Bologna.
  4. Liu, Yuanli & Hsiao, William C. & Eggleston, Karen, 1999. "Equity in health and health care: the Chinese experience," Social Science & Medicine, Elsevier, vol. 49(10), pages 1349-1356, November.
  5. Sloan, Frank A., 2000. "Not-for-profit ownership and hospital behavior," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 21, pages 1141-1174 Elsevier.
  6. McGuire, Thomas G., 2000. "Physician agency," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 9, pages 461-536 Elsevier.
  7. Hart, Oliver & Shleifer, Andrei & Vishny, Robert W, 1997. "The Proper Scope of Government: Theory and an Application to Prisons," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1127-61, November.
  8. Mark Duggan, 2000. "Hospital Ownership and Public Medical Spending," NBER Working Papers 7789, National Bureau of Economic Research, Inc.
  9. Pedro Pita Barros & Xavier Martinez-Giralt, 2002. "Public and Private Provision of Health Care," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 11(1), pages 109-133, 03.
  10. Winnie Yip & Karen Eggleston, 2001. "Provider payment reform in China: the case of hospital reimbursement in Hainan province," Health Economics, John Wiley & Sons, Ltd., vol. 10(4), pages 325-339.
  11. Hsiao, William C. L., 1995. "The Chinese health care system: Lessons for other nations," Social Science & Medicine, Elsevier, vol. 41(8), pages 1047-1055, October.
  12. Liu, Yuanli, 2002. "Reforming China's urban health insurance system," Health Policy, Elsevier, vol. 60(2), pages 133-150, May.
  13. Fleisher, Belton M. & Wang, Xiaojun, 2001. "Efficiency Wages and Work Incentives in Urban and Rural China," Journal of Comparative Economics, Elsevier, vol. 29(4), pages 645-662, December.
  14. Henderson, Gail & Shuigao, Jin & Akin, John & Zhiming, Li & Jianmin, Wang & Haijiang, Ma & Yunan, He & Xiping, Zhang & Ying, Chang & Keyou, Ge, 1995. "Distribution of medical insurance in China," Social Science & Medicine, Elsevier, vol. 41(8), pages 1119-1130, October.
  15. Frank, Richard G. & Glazer, Jacob & McGuire, Thomas G., 2000. "Measuring adverse selection in managed health care," Journal of Health Economics, Elsevier, vol. 19(6), pages 829-854, November.
  16. Banerjee, Abhijit V, 1997. "A Theory of Misgovernance," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1289-1332, November.
  17. Banerjee, A.V., 1997. "A Theory of Misgovernance," Working papers 97-4, Massachusetts Institute of Technology (MIT), Department of Economics.
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Citations

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Cited by:
  1. Currie, Janet & Lin, Wanchuan & Zhang, Wei, 2011. "Patient knowledge and antibiotic abuse: Evidence from an audit study in China," Journal of Health Economics, Elsevier, vol. 30(5), pages 933-949.
  2. Liu, Gordon G. & Li, Lin & Hou, Xiaohui & Xu, Judy & Hyslop, Daniel, 2009. "The role of for-profit hospitals in medical expenditures: Evidence from aggregate data in China," China Economic Review, Elsevier, vol. 20(4), pages 625-633, December.
  3. Wang, Hufeng, 2009. "A dilemma of Chinese healthcare reform: How to re-define government roles?," China Economic Review, Elsevier, vol. 20(4), pages 598-604, December.
  4. Eggleston, Karen, 2005. "Multitasking and mixed systems for provider payment," Journal of Health Economics, Elsevier, vol. 24(1), pages 211-223, January.
  5. Eggleston, Karen & Wang, Jian & Rao, Keqin, 2008. "From plan to market in the health sector?: China's experience," Journal of Asian Economics, Elsevier, vol. 19(5-6), pages 400-412.
  6. Lijian Qin & Suwen Pan & Chenggang Wang & Zhongyi Jiang, 2012. "Adverse selection in China's New Rural Cooperative Medical Scheme," China Agricultural Economic Review, Emerald Group Publishing, vol. 4(1), pages 69-83, February.
  7. Karen Eggleston & Anupa Bir, 2009. "Measuring Selection Incentives in Managed Care: Evidence From the Massachusetts State Employee Insurance Program," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 76(1), pages 159-175.
  8. Wang, Hufeng & Gusmano, Michael K. & Cao, Qi, 2011. "An evaluation of the policy on community health organizations in China: Will the priority of new healthcare reform in China be a success?," Health Policy, Elsevier, vol. 99(1), pages 37-43, January.
  9. Jia CUI & Shaomin HUANG & Gerald RAMEY, 2009. "China’s Healthcare Reform And Resources Redistribution: Lessons For Emerging Nations," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 4, pages 27-42, November.
  10. Philip H. Brown & Caroline Theoharides, 2009. "Health‐seeking behavior and hospital choice in China's New Cooperative Medical System," Health Economics, John Wiley & Sons, Ltd., vol. 18(S2), pages S47-S64, July.
  11. Hou, Xiaohui & Coyne, Joseph, 2008. "The emergence of proprietary medical facilities in China," Health Policy, Elsevier, vol. 88(1), pages 141-151, October.
  12. Ng, Ying Chu, 2011. "The productive efficiency of Chinese hospitals," China Economic Review, Elsevier, vol. 22(3), pages 428-439, September.

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