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Efficiency, access and the mixed delivery of health care services

  • CANTA, Chiara


    (Université catholique de Louvain, CORE, B-1348 Louvain-la-Neuve, Belgium)

The focus of this paper is on the trade-off between cost efficiency and access in the choice of the optimal mix of public and private provision in universal health systems. We model a simple health care market in which the regulator acts as a third payer. Patients need one unit of medical service and differ in the severity of illness. A private and a public hospital are available. The private manager internalizes profits, and has an incentive both to refuse to treat costly patients and to exert effort in cost reduction. The public manager does not internalize profits, and has no incentive to reduce costs or to dump costly patients. We show that, when a relatively efficient effort in cost reduction is available, it is optimal to buy part of the services from the private hospital. This may be the case for procedures that are easier to standardize, such as elective surgery. Since the regulator acts as an insurer for the whole population, a public hospital has to be used as a last resort facility. Imposing a no-dumping constraint on the private hospital is not always optimal since eliciting effort and truthful revelation of costs may become more difficult.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2011046.

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Date of creation: 28 Oct 2011
Date of revision:
Handle: RePEc:cor:louvco:2011046
Contact details of provider: Postal: Voie du Roman Pays 34, 1348 Louvain-la-Neuve (Belgium)
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  1. Simona Grassi & Ching‐To Albert Ma, 2012. "Public Sector Rationing and Private Sector Selection," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 14(1), pages 1-34, 02.
  2. Simona Grassi & Ching-to Albert Ma, . "Optimal Public Rationing and Price Response," Boston University - Department of Economics - Working Papers Series wp2009-008, Boston University - Department of Economics.
  3. Klaus M. Schmidt, 1995. "Incomplete Contracts and Privatization," Discussion Paper Serie A 480, University of Bonn, Germany.
  4. Cremer, Helmuth & Marchand, Maurice & Thisse, Jacques-Francois, 1989. "The Public Firm as an Instrument for Regulating an Oligopolistic Market," Oxford Economic Papers, Oxford University Press, vol. 41(2), pages 283-301, April.
  5. Wright, Donald J., 2007. "Specialist payment schemes and patient selection in private and public hospitals," Journal of Health Economics, Elsevier, vol. 26(5), pages 1014-1026, September.
  6. 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.
  7. Jofre-Bonet, Mireia, 2000. "Health care: private and/or public provision," European Journal of Political Economy, Elsevier, vol. 16(3), pages 469-489, September.
  8. James Malcomson & Martin Chalkley, 2001. "Cost Sharing in Health Service Provision: An Empirical Assessment of Cost Savings," Economics Series Working Papers 69, University of Oxford, Department of Economics.
  9. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, June.
  10. Zuckerman, Stephen & Hadley, Jack & Iezzoni, Lisa, 1994. "Measuring hospital efficiency with frontier cost functions," Journal of Health Economics, Elsevier, vol. 13(3), pages 255-280, October.
  11. Mark Duggan, 2000. "Hospital Ownership and Public Medical Spending," NBER Working Papers 7789, National Bureau of Economic Research, Inc.
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