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Static and dynamic efficiency of irreversible health care investments under alternative payment rules

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  • Levaggi, R.
  • Moretto, M.
  • Pertile, P.

Abstract

The paper studies the incentive for providers to invest in new health care technologies under alternative payment systems, when the patients’ benefits are uncertain. If the reimbursement by the purchaser includes both a variable (per patient) and a lump-sum component, efficiency can be ensured both in the timing of adoption (dynamic) and the intensity of use of the technology (static). If the second instrument is unavailable, a trade-off may emerge between static and dynamic efficiency. In this context, we also discuss how the regulator could use control of the level of uncertainty faced by the provider as an instrument to mitigate the trade-off between static and dynamic efficiency. Finally, we calibrate the model to study a specific technology and estimate the cost of a regulatory failure.

Suggested Citation

  • Levaggi, R. & Moretto, M. & Pertile, P., 2012. "Static and dynamic efficiency of irreversible health care investments under alternative payment rules," Journal of Health Economics, Elsevier, vol. 31(1), pages 169-179.
  • Handle: RePEc:eee:jhecon:v:31:y:2012:i:1:p:169-179
    DOI: 10.1016/j.jhealeco.2011.09.005
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    References listed on IDEAS

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    1. Amitabh Chandra & Jonathan Skinner, 2012. "Technology Growth and Expenditure Growth in Health Care," Journal of Economic Literature, American Economic Association, vol. 50(3), pages 645-680, September.
    2. Levaggi, R. & Moretto, M. & Pertile, P., 2012. "Static and dynamic efficiency of irreversible health care investments under alternative payment rules," Journal of Health Economics, Elsevier, vol. 31(1), pages 169-179.
    3. Joseph P. Newhouse, 1992. "Medical Care Costs: How Much Welfare Loss?," Journal of Economic Perspectives, American Economic Association, vol. 6(3), pages 3-21, Summer.
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    6. Rosella Levaggi & Michele Moretto & Vincenzo Rebba, 2009. "Investment decisions in hospital technology when physicians are devoted workers," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 18(5), pages 487-512.
    7. Paolo Pertile, 2008. "Investment in Health Technologies in a Competitive Model with Real Options," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 10(5), pages 923-952, October.
    8. Susan C. Griffin & Karl P. Claxton & Stephen J. Palmer & Mark J. Sculpher, 2011. "Dangerous omissions: the consequences of ignoring decision uncertainty," Health Economics, John Wiley & Sons, Ltd., vol. 20(2), pages 212-224, February.
    9. Dixit, Avinash & Pindyck, Robert S & Sodal, Sigbjorn, 1999. "A Markup Interpretation of Optimal Investment Rules," Economic Journal, Royal Economic Society, vol. 109(455), pages 179-189, April.
    10. Bokhari, Farasat A.S., 2009. "Managed care competition and the adoption of hospital technology: The case of cardiac catheterization," International Journal of Industrial Organization, Elsevier, vol. 27(2), pages 223-237, March.
    11. Paolo Pertile & Emanuele Torri & Luciano Flor & Stefano Tardivo, 2009. "The timing of adoption of positron emission tomography: a real options approach," Health Care Management Science, Springer, vol. 12(3), pages 217-227, September.
    12. Chalkley, Martin & Malcomson, James M., 2000. "Government purchasing of health services," Handbook of Health Economics,in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 15, pages 847-890 Elsevier.
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    Cited by:

    1. Barros Pedro Pita & Martinez-Giralt Xavier, 2015. "Technological Adoption in Health Care – The Role of Payment Systems," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 15(2), pages 709-745, April.
    2. Annie Tubadji & Vassilis Angelis & Peter Nijkamp, 2016. "Endogenous intangible resources and their place in the institutional hierarchy," Review of Regional Research: Jahrbuch für Regionalwissenschaft, Springer;Gesellschaft für Regionalforschung (GfR), vol. 36(1), pages 1-28, February.
    3. Brekke, Kurt R. & Levaggi, Rosella & Siciliani, Luigi & Straume, Odd Rune, 2016. "Patient mobility and health care quality when regions and patients differ in income," Journal of Health Economics, Elsevier, vol. 50(C), pages 372-387.
    4. Levaggi, R. & Moretto, M. & Pertile, P., 2012. "Static and dynamic efficiency of irreversible health care investments under alternative payment rules," Journal of Health Economics, Elsevier, vol. 31(1), pages 169-179.
    5. repec:bla:jpbect:v:19:y:2017:i:1:p:121-141 is not listed on IDEAS
    6. Levaggi, Rosella & Moretto, Michele & Pertile, Paolo, 2014. "Two-part payments for the reimbursement of investments in health technologies," Health Policy, Elsevier, vol. 115(2), pages 230-236.
    7. Rosella Levaggi & Michele Moretto & Paolo Pertile, 2017. "The Dynamics of Pharmaceutical Regulation and R&D Investments," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 19(1), pages 121-141, February.
    8. Bisceglia, Michele & Cellini, Roberto & Grilli, Luca, 2017. "Regional regulators in healthcare service under quality competition: A game theoretical model," MPRA Paper 80507, University Library of Munich, Germany.
    9. Rosella Levaggi & Michele Moretto & Paolo Pertile, 2012. "DRGs: the link between investment in technologies and appropriateness," Working Papers 31/2012, University of Verona, Department of Economics.
    10. Bisceglia, Michele & Cellini, Roberto & Grilli, Luca, 2017. "Quality competition in healthcare services with regional regulators: A differential game approach," MPRA Paper 81758, University Library of Munich, Germany.

    More about this item

    Keywords

    Health care technologies; Dynamic efficiency; Static efficiency; Real options;

    JEL classification:

    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing

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