IDEAS home Printed from https://ideas.repec.org/p/fem/femwpa/2010.130.html
   My bibliography  Save this paper

Static and Dynamic Efficiency of Irreversible Health Care Investments under Alternative Payment Rules

Author

Listed:
  • Rosella Levaggi

    (University of Brescia)

  • Michele Moretto

    (University of Padova and FEEM)

  • Paolo Pertile

    (University of Verona)

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 the control of the level of uncertainty faced by the provider as an instrument to mitigate the trade-off between static and dynamic efficiency. Finally, the model is calibrated to study a specific technology.

Suggested Citation

  • Rosella Levaggi & Michele Moretto & Paolo Pertile, 2010. "Static and Dynamic Efficiency of Irreversible Health Care Investments under Alternative Payment Rules," Working Papers 2010.130, Fondazione Eni Enrico Mattei.
    • Handle: RePEc:fem:femwpa:2010.130
    as

    Download full text from publisher

    File URL: https://feem-media.s3.eu-central-1.amazonaws.com/wp-content/uploads/NDL2010-130.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Laurence C. Baker & Ciaran S. Phibbs, 2002. "Managed Care, Technology Adoption, and Health Care: The Adoption of Neonatal Intensive Care," RAND Journal of Economics, The RAND Corporation, vol. 33(3), pages 524-548, Autumn.
    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. McClellan, Mark, 1995. "Uncertainty, Health-Care Technologies, and Health-Care Choices," American Economic Review, American Economic Association, vol. 85(2), pages 38-44, May.
    4. 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.
    5. 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.
    6. Pedro Pita Barros & Xavier Martínez-Giralt, 2009. "Technological adoption in health care," Working Papers 413, Barcelona School of Economics.
    7. 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.
    8. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474.
    9. 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.
    10. Amitabh Chandra & Jonathan S. Skinner, 2011. "Technology Growth and Expenditure Growth in Health Care," NBER Working Papers 16953, National Bureau of Economic Research, Inc.
    11. 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.
    12. 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.
    13. 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.
    14. 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.
    15. 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.
    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. 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.
    2. 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.
    3. Michele Bisceglia & Roberto Cellini & Luca Grilli, 2019. "Quality Competition in Healthcare Services with Regional Regulators: A Differential Game Approach," Dynamic Games and Applications, Springer, vol. 9(1), pages 1-23, March.
    4. 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.
    5. Michele Bisceglia & Roberto Cellini & Luca Grilli, 2018. "Regional regulators in health care service under quality competition: A game theoretical model," Health Economics, John Wiley & Sons, Ltd., vol. 27(11), pages 1821-1842, November.
    6. Roberto Cellini & Domenico Lisi, 2020. "Readmission treatment price and product quality in the hospital sector," Health Economics, John Wiley & Sons, Ltd., vol. 29(1), pages 61-71, January.
    7. 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.
    8. Cellini, Roberto & Lisi, Domenico, 2019. "Readmission treatment price and product quality in the hospital sector: A note," MPRA Paper 92505, 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. Ghandour, Ziad & Siciliani, Luigi & Straume, Odd Rune, 2022. "Investment and quality competition in healthcare markets," Journal of Health Economics, Elsevier, vol. 82(C).
    11. 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.
    12. 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.
    13. Rosella Levaggi & Michele Moretto & Paolo Pertile, 2023. "Dynamic, incentive-compatible contracting for health services," Working Papers 2023.16, Fondazione Eni Enrico Mattei.
    14. Xidong Guo, 2024. "An analysis of a rural hospital's investment decision under different payment systems," Health Economics, John Wiley & Sons, Ltd., vol. 33(4), pages 714-747, April.
    15. Laurence C. Baker & Karine Lamiraud, 2022. "Adoption of hospital diagnosis‐related group financing in Switzerland and the availability of computed tomography scanners," Health Economics, John Wiley & Sons, Ltd., vol. 31(12), pages 2537-2557, December.

    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. Rosella Levaggi & Moretto Michele, 2008. "Investment In Hospital Care Technology Under Different Purchasing Rules: A Real Option Approach," Bulletin of Economic Research, Wiley Blackwell, vol. 60(2), pages 159-181, April.
    2. Xidong Guo, 2024. "An analysis of a rural hospital's investment decision under different payment systems," Health Economics, John Wiley & Sons, Ltd., vol. 33(4), pages 714-747, April.
    3. Freedman, Seth & Lin, Haizhen & Simon, Kosali, 2015. "Public health insurance expansions and hospital technology adoption," Journal of Public Economics, Elsevier, vol. 121(C), pages 117-131.
    4. Pedro Pita Barros & Xavier Martínez-Giralt, 2009. "Technological adoption in health care," Working Papers 413, Barcelona School of Economics.
    5. Finocchiaro Castro, Massimo & Guccio, Calogero & Pignataro, Giacomo & Rizzo, Ilde, 2014. "The effects of reimbursement mechanisms on medical technology diffusion in the hospital sector in the Italian NHS," Health Policy, Elsevier, vol. 115(2), pages 215-229.
    6. Laurence C. Baker & Karine Lamiraud, 2022. "Adoption of hospital diagnosis‐related group financing in Switzerland and the availability of computed tomography scanners," Health Economics, John Wiley & Sons, Ltd., vol. 31(12), pages 2537-2557, December.
    7. 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.
    8. David H. Howard & Yu-Chu Shen, 2011. "Comparative Effectiveness Research, COURAGE, and Technological Abandonment," NBER Working Papers 17371, National Bureau of Economic Research, Inc.
    9. Nuscheler, Robert & Roeder, Kerstin, 2015. "Financing and funding health care: Optimal policy and political implementability," Journal of Health Economics, Elsevier, vol. 42(C), pages 197-208.
    10. Daron Acemoglu & Amy Finkelstein, 2008. "Input and Technology Choices in Regulated Industries: Evidence from the Health Care Sector," Journal of Political Economy, University of Chicago Press, vol. 116(5), pages 837-880, October.
    11. Li, Eric A.L., 2014. "Test for the real option in consumer behavior," Research in Economics, Elsevier, vol. 68(1), pages 70-83.
    12. Billette de Villemeur, Etienne & Ruble, Richard & Versaevel, Bruno, 2014. "Investment timing and vertical relationships," International Journal of Industrial Organization, Elsevier, vol. 33(C), pages 110-123.
    13. 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.
    14. Beitia, Arantza, 2003. "Hospital quality choice and market structure in a regulated duopoly," Journal of Health Economics, Elsevier, vol. 22(6), pages 1011-1036, November.
    15. Chiara D’Alpaos & Michele Moretto & Paola Valbonesi & Sergio Vergalli, 2013. "Time overruns as opportunistic behavior in public procurement," Journal of Economics, Springer, vol. 110(1), pages 25-43, September.
    16. Marco Antonio Guimaraes Dias & Jose Paulo Teixeira, 2010. "Continuous-Time Option Games: Review of Models and Extensions," Multinational Finance Journal, Multinational Finance Journal, vol. 14(3-4), pages 219-254, September.
    17. Elín Hafsteinsdóttir & Luigi Siciliani, 2012. "Hospital cost sharing incentives: evidence from Iceland," Empirical Economics, Springer, vol. 42(2), pages 539-561, April.
    18. Boone, J. & Douven, R.C.M.H., 2014. "Provider Competition and Over-Utilization in Health Care," Discussion Paper 2014-055, Tilburg University, Center for Economic Research.
    19. Karine Lamiraud & Stephane Lhuillery, 2016. "Endogenous Technology Adoption and Medical Costs," Health Economics, John Wiley & Sons, Ltd., vol. 25(9), pages 1123-1147, September.
    20. Buso, Marco & Moretto, Michele & Zormpas, Dimitrios, 2021. "Excess returns in Public-Private Partnerships: Do governments pay too much?," Economic Modelling, Elsevier, vol. 102(C).

    More about this item

    Keywords

    Health Care; Investments;

    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

    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:fem:femwpa:2010.130. 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: Alberto Prina Cerai (email available below). General contact details of provider: https://edirc.repec.org/data/feemmit.html .

    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.