IDEAS home Printed from https://ideas.repec.org/p/tuf/tuftec/0401.html
   My bibliography  Save this paper

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

Author

Listed:
  • 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.

Suggested Citation

  • Karen Eggleston & Winnie Yip, 2004. "Hospital Competition under Regulated Prices: Application to Urban Health Sector Reforms in China," Discussion Papers Series, Department of Economics, Tufts University 0401, Department of Economics, Tufts University.
    • Handle: RePEc:tuf:tuftec:0401
    as

    Download full text from publisher

    File URL: http://ase.tufts.edu/econ/papers/200401.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Abhijit V. Banerjee, 1997. "A Theory of Misgovernance," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(4), pages 1289-1332.
    2. 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.
    3. 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.
    4. Kornai,János & Eggleston,Karen, 2010. "Welfare, Choice and Solidarity in Transition," Cambridge Books, Cambridge University Press, number 9780521159371.
    5. 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.
    6. Oliver Hart & Andrei Shleifer & Robert W. Vishny, 1997. "The Proper Scope of Government: Theory and an Application to Prisons," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(4), pages 1127-1161.
    7. 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.
    8. Norman,George & Thisse,Jacques-François (ed.), 2000. "Market Structure and Competition Policy," Cambridge Books, Cambridge University Press, number 9780521783330.
    9. Mark G. Duggan, 2000. "Hospital Ownership and Public Medical Spending," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 115(4), pages 1343-1373.
    10. 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, March.
    11. Joseph P. Newhouse, 2004. "Pricing the Priceless: A Health Care Conundrum," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262640589, December.
    12. 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.
    13. 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.
    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. Liu, Yuanli, 2002. "Reforming China's urban health insurance system," Health Policy, Elsevier, vol. 60(2), pages 133-150, May.
    16. 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.
    17. S. Baranzoni & P. Bianchi & L. Lambertini, 2000. "Multiproduct Firms, Product Differentiation, and Market Structure," Working Papers 368, Dipartimento Scienze Economiche, Universita' di Bologna.
    18. Keeler, Emmett B. & Carter, Grace & Newhouse, Joseph P., 1998. "A model of the impact of reimbursement schemes on health plan choice," Journal of Health Economics, Elsevier, vol. 17(3), pages 297-320, June.
    19. A. J. Culyer & J. P. Newhouse (ed.), 2000. "Handbook of Health Economics," Handbook of Health Economics, Elsevier, edition 1, volume 1, number 1.
    20. 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, June.
    21. 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)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    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. 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 Limited, vol. 4(1), pages 69-83, January.
    3. 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.
    4. 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.
    5. Currie, Janet & Lin, Wanchuan & Meng, Juanjuan, 2014. "Addressing antibiotic abuse in China: An experimental audit study," Journal of Development Economics, Elsevier, vol. 110(C), pages 39-51.
    6. 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, March.
    7. Ng, Ying Chu, 2011. "The productive efficiency of Chinese hospitals," China Economic Review, Elsevier, vol. 22(3), pages 428-439, September.
    8. Lu, Liyong & Pan, Jay, 2019. "The association of hospital competition with inpatient costs of stroke: Evidence from China," Social Science & Medicine, Elsevier, vol. 230(C), pages 234-245.
    9. Janet Currie & Wanchuan Lin & Juanjuan Meng, 2012. "Using Audit Studies to Test for Physician Induced Demand: The Case of Antibiotic Abuse in China," NBER Working Papers 18153, National Bureau of Economic Research, Inc.
    10. Zhou, Mei & Zhao, Shaoyang & Fu, Mingwei, 2021. "Supply-induced demand for medical services under price regulation: Evidence from hospital expansion in China," China Economic Review, Elsevier, vol. 68(C).
    11. LIN, Zhijun & YU, Zengbiao & ZHANG, Liqun, 2014. "Performance outcomes of balanced scorecard application in hospital administration in China," China Economic Review, Elsevier, vol. 30(C), pages 1-15.
    12. 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.
    13. 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.
    14. Huazhang Li & Kun Liu & Jianjun Gu & Yimin Zhang & Yun Qiao & Xiaoming Sun, 2017. "The development and impact of primary health care in China from 1949 to 2015: A focused review," International Journal of Health Planning and Management, Wiley Blackwell, vol. 32(3), pages 339-350, July.
    15. Yu Xia & Jing Li & Zhongyang Zhang, 2023. "Effects of price cap regulation on pharmaceutical supply chain under the zero markup drug policy," Operational Research, Springer, vol. 23(4), pages 1-27, December.
    16. Tabea Bork-HÜffer & Frauke Kraas, 2015. "Health Care Disparities in Megaurban China: The Ambivalent Role of Unregistered Practitioners," Tijdschrift voor Economische en Sociale Geografie, Royal Dutch Geographical Society KNAG, vol. 106(3), pages 339-352, July.
    17. 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 47-64, July.
    18. Wang, Jian & Iversen, Tor & Hennig-Schmidt, Heike & Godager, Geir, 2017. "How Changes in Payment Schemes Influence Provision Behavior," HERO Online Working Paper Series 2017:2, University of Oslo, Health Economics Research Programme.
    19. Eggleston, Karen, 2005. "Multitasking and mixed systems for provider payment," Journal of Health Economics, Elsevier, vol. 24(1), pages 211-223, January.
    20. Zhou, Guoliang & Chen, Ran & Chen, Mingsheng, 2020. "Equity in health-care financing in China during the progression toward universal health coverage," China Economic Review, Elsevier, vol. 61(C).
    21. Currie, Janet & Lin, Wanchuan & Meng, Juanjuan, 2013. "Social networks and externalities from gift exchange: Evidence from a field experiment," Journal of Public Economics, Elsevier, vol. 107(C), pages 19-30.
    22. 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.
    23. Hou, Xiaohui & Coyne, Joseph, 2008. "The emergence of proprietary medical facilities in China," Health Policy, Elsevier, vol. 88(1), pages 141-151, October.
    24. Liyong Lu & Jay Pan, 2021. "Does hospital competition lead to medical equipment expansion? Evidence on the medical arms race," Health Care Management Science, Springer, vol. 24(3), pages 582-596, September.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. 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.
    2. Nolan Miller & Karen Eggleston & Richard Zeckhauser, 2006. "Provider choice of quality and surplus," International Journal of Health Economics and Management, Springer, vol. 6(2), pages 103-117, June.
    3. 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, March.
    4. Karen Eggleston & Chee-Ruey Hsieh, 2004. "Health Care Payment Incentives: A Comparative Analysis of Reforms in Taiwan, Korea and China," Discussion Papers Series, Department of Economics, Tufts University 0402, Department of Economics, Tufts University.
    5. Ma, Ching-to Albert & Mak, Henry Y., 2015. "Information disclosure and the equivalence of prospective payment and cost reimbursement," Journal of Economic Behavior & Organization, Elsevier, vol. 117(C), pages 439-452.
    6. Hammer, Jeffrey & Jack, William, 2002. "Designing incentives for rural health care providers in developing countries," Journal of Development Economics, Elsevier, vol. 69(1), pages 297-303, October.
    7. Karen Eggleston, 2001. "Multitasking, Competition and Provider Payment," Discussion Papers Series, Department of Economics, Tufts University 0101, Department of Economics, Tufts University.
    8. Francisco J. Gomes & Laurence J. Kotlikoff & Luis M. Viceira, 2012. "The Excess Burden of Government Indecision," NBER Chapters, in: Tax Policy and the Economy, Volume 26, pages 125-163, National Bureau of Economic Research, Inc.
    9. Karen Eggleston & Li Ling & Meng Qingyue & Magnus Lindelow & Adam Wagstaff, 2008. "Health service delivery in China: a literature review," Health Economics, John Wiley & Sons, Ltd., vol. 17(2), pages 149-165, February.
    10. Philippe Choné & Ching-to Albert Ma, 2004. "Asymmetric Information from Physician Agency : Optimal Payment and Healthcare Quantity," Working Papers 2004-37, Center for Research in Economics and Statistics.
    11. Glazer, Jacob & McGuire, Thomas G., 2002. "Setting health plan premiums to ensure efficient quality in health care: minimum variance optimal risk adjustment," Journal of Public Economics, Elsevier, vol. 84(2), pages 153-173, May.
    12. Jack, William, 2005. "Purchasing health care services from providers with unknown altruism," Journal of Health Economics, Elsevier, vol. 24(1), pages 73-93, January.
    13. Philippe Choné & Ching-To Albert Ma, 2011. "Optimal Health Care Contract under Physician Agency," Annals of Economics and Statistics, GENES, issue 101-102, pages 229-256.
    14. Hennig-Schmidt, Heike & Selten, Reinhard & Wiesen, Daniel, 2011. "How payment systems affect physicians' provision behaviour--An experimental investigation," Journal of Health Economics, Elsevier, vol. 30(4), pages 637-646, July.
    15. Godager, Geir & Wiesen, Daniel, 2013. "Profit or patients’ health benefit? Exploring the heterogeneity in physician altruism," Journal of Health Economics, Elsevier, vol. 32(6), pages 1105-1116.
    16. Tsuyoshi Takahara, 2016. "Patient dumping, outlier payments, and optimal healthcare payment policy under asymmetric information," Health Economics Review, Springer, vol. 6(1), pages 1-11, December.
    17. Adam Wagstaff & Winnie Yip & Magnus Lindelow & William C. Hsiao, 2009. "China's health system and its reform: a review of recent studies," Health Economics, John Wiley & Sons, Ltd., vol. 18(S2), pages 7-23, July.
    18. Chiara Canta, 2021. "Efficiency, access, and the mixed delivery of health care services," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 23(3), pages 510-533, June.
    19. Schokkaert, Erik & Van de Voorde, Carine, 2004. "Risk selection and the specification of the conventional risk adjustment formula," Journal of Health Economics, Elsevier, vol. 23(6), pages 1237-1259, November.
    20. Barros, Pedro Pita, 2003. "Cream-skimming, incentives for efficiency and payment system," Journal of Health Economics, Elsevier, vol. 22(3), pages 419-443, May.

    More about this item

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:tuf:tuftec:0401. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Marcus Weir (email available below). General contact details of provider: http://ase.tufts.edu/economics .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.