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Saving the public from the private? Incentives and outcomes in dual practice

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  • Kuhn, Michael
  • Nuscheler, Robert

Abstract

We consider a setting of dual practice, where a physician offers free public treatment and, if allowed, a private treatment for which patients have to pay out of pocket. Private treatment is superior in terms of health outcomes but more costly and time intensive. For the latter reason it generates waiting costs. As patients differ in their propensity to benefit from private treatment and in their costs of waiting for treatment, we study the physician's incentives to supply private care and to allocate waiting time to public and private sectors and contrast it with the first-best allocation. The physician shifts waiting costs to public patients in order to increase the willingness-topay for private treatment. While this waiting time allocation turns out to be socially optimal, the resulting positive network effect leads to an over-provision of private care if and only if waiting costs are sufficiently high. A second-best allocation arises when the health authority selects physician reimbursement in the public segment but has no control over private provision. Depending on the welfare weight the health authority attaches to physician profits a ban of dual practice may improve on the second-best allocation. Due to patient heterogeneity, such a ban would affect patients differently. --

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Bibliographic Info

Paper provided by Vienna University of Technology, Institute for Mathematical Methods in Economics, Research Group Economics (ECON) in its series ECON WPS - Vienna University of Technology Working Papers in Economic Theory and Policy with number 02/2013.

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Date of creation: 2013
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Handle: RePEc:zbw:tuweco:022013

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Web page: http://www.econ.tuwien.ac.at/
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Keywords: dual practice; health outcomes; health care financing; provider contract; waiting times;

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  1. Paula González & Inés Macho-Stadler, 2011. "A Theoretical Approach to Dual Practice Regulations in the Health Sector," Working Papers 11.01, Universidad Pablo de Olavide, Department of Economics.
  2. Hoel, Michael & Saether, Erik Magnus, 2003. "Public health care with waiting time: the role of supplementary private health care," Journal of Health Economics, Elsevier, Elsevier, vol. 22(4), pages 599-616, July.
  3. Ariadna García-Prado & Paula González, 2006. "Who do physicians work for?," Working Papers 06.28, Universidad Pablo de Olavide, Department of Economics.
  4. Pita Barros, Pedro Luis, 2000. "Waiting Lists and Patient Selection," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2519, C.E.P.R. Discussion Papers.
  5. Paula González, 2004. "Should physicians' dual practice be limited? An incentive approach," Health Economics, John Wiley & Sons, Ltd., vol. 13(6), pages 505-524.
  6. Socha, Karolina Z. & Bech, Mickael, 2011. "Physician dual practice: A review of literature," Health Policy, Elsevier, Elsevier, vol. 102(1), pages 1-7, September.
  7. Garcia-Prado, Ariadna & Gonzalez, Paula, 2007. "Policy and regulatory responses to dual practice in the health sector," Health Policy, Elsevier, Elsevier, vol. 84(2-3), pages 142-152, December.
  8. Iversen, Tor, 1997. "The effect of a private sector on the waiting time in a national health service," Journal of Health Economics, Elsevier, Elsevier, vol. 16(4), pages 381-396, August.
  9. Katherine Cuff & Jeremiah Hurley & Stuart Mestelman & Andrew Muller & Robert Nuscheler, 2012. "Public and private health‐care financing with alternate public rationing rules," Health Economics, John Wiley & Sons, Ltd., vol. 21(2), pages 83-100, 02.
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