IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Hospital Health Care: Pricing and Quality Control in a Spatial Model with Asymmetry of Information

  • Rosella Levaggi

    ()

The cost of hospital care depends on the quality of the service, on the personal characteristics of the patient, on the effort of the medical staff and on information asymmetry. In this article the cost minimizing properties of alternative payment systems will be discussed in a context where hospitals can observe patient severity and compete according to the rules of Hotelling's spatial competition. The scheme is designed from the standpoint of a purchaser that sets up a contract with several providers for services of a given quality at the least possible cost. Patients' severity cannot be observed and quality cannot be verified, but the latter can be inferred through the choice of patients. The model shows that in the health care market, prospective payments and yardstick competition are weak instruments for cost containment; incentive compatible schemes are, at least from a theoretical point of view, better instruments especially in a context where the purchaser can use signals relating to the variables it cannot observe. Cost inflation has two components: the information rent paid to the provider and inefficiency. In our model the information rent is used by the provider to get more patients to his hospital; spatial competition can then be used to curb the cost of providing hospital care. Copyright Springer Science + Business Media, Inc. 2005

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://hdl.handle.net/10.1007/s10754-005-3800-1
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Springer in its journal International Journal of Health Care Finance and Economics.

Volume (Year): 5 (2005)
Issue (Month): 4 (December)
Pages: 327-349

as
in new window

Handle: RePEc:kap:ijhcfe:v:5:y:2005:i:4:p:327-349
Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=106603

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.:

as in new window
  1. Biglaiser, Gary & Ma, Ching-to Albert, 2003. " Price and Quality Competition under Adverse Selection: Market Organization and Efficiency," RAND Journal of Economics, The RAND Corporation, vol. 34(2), pages 266-86, Summer.
  2. Rossella Levaggi & Michele Moretto, 2007. "Investment in hospital care technology under different purchasing rules: a real option approach," "Marco Fanno" Working Papers 0046, Dipartimento di Scienze Economiche "Marco Fanno".
  3. Martin Gaynor & William B Vogt, 2003. "Competition among Hospitals," The Centre for Market and Public Organisation 03/087, Department of Economics, University of Bristol, UK.
  4. Ellis, Randall P., 1998. "Creaming, skimping and dumping: provider competition on the intensive and extensive margins1," Journal of Health Economics, Elsevier, vol. 17(5), pages 537-555, October.
  5. 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.
  6. Chalkley, M. & Malcomson, J.M., 2001. "Cost Sharing in Health Service Provision: An Empirical Assessment of Cost Savings," Economics Series Working Papers 9969, University of Oxford, Department of Economics.
  7. Sappington, David, 1983. "Limited liability contracts between principal and agent," Journal of Economic Theory, Elsevier, vol. 29(1), pages 1-21, February.
  8. Chalkley, Martin & Malcomson, James M, 1998. "Contracting for Health Services with Unmonitored Quality," Economic Journal, Royal Economic Society, vol. 108(449), pages 1093-1110, July.
  9. SALMON, Pierre, 1987. "Decentralization as an incentive scheme," Institut des Mathématiques Economiques – Document de travail de l’I.M.E. (1974-1993) 98, Institut des Mathématiques Economiques. LATEC, Laboratoire d'Analyse et des Techniques EConomiques, CNRS, Université de Bourgogne.
  10. Gravelle, Hugh, 1999. "Capitation contracts: access and quality," Journal of Health Economics, Elsevier, vol. 18(3), pages 315-340, June.
  11. Rosella LEVAGGI & Lise ROCHAIX, 2007. "Exit, Choice Or Loyalty: Patient Driven Competition In Primary Care," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 78(4), pages 501-535, December.
  12. Daniel P. Kessler & Mark B. McClellan, 2000. "Is Hospital Competition Socially Wasteful?," The Quarterly Journal of Economics, MIT Press, vol. 115(2), pages 577-615, May.
  13. Dranove, David, 1988. "Demand Inducement and the Physician/Patient Relationship," Economic Inquiry, Western Economic Association International, vol. 26(2), pages 281-98, April.
  14. Levaggi, Rosella & Montefiori, Marcello, 2005. "It takes three to tango: Soft budget constraint and cream skimming in the hospital care market," POLIS Working Papers 48, Institute of Public Policy and Public Choice - POLIS.
  15. Levaggi, Rosella, 1999. " Optimal Procurement Contracts under a Binding Budget Constraint," Public Choice, Springer, vol. 101(1-2), pages 23-37, October.
  16. Joseph P. Newhouse, 1996. "Reimbursing Health Plans and Health Providers: Efficiency in Production versus Selection," Journal of Economic Literature, American Economic Association, vol. 34(3), pages 1236-1263, September.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:kap:ijhcfe:v:5:y:2005:i:4:p:327-349. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guenther Eichhorn)

or (Christopher F. Baum)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.