No abstract

No abstract

One of the mechanisms that is implemented in the cost containment wave in the health care sectors in western countries is the definition, by the third-party payer, of a set of preferred providers. The insured patients have different access rules to such providers when ill. The rules specify the co-payments and the indemnity the patient obtains if patronizing an out-of-plan care provider. We propose to study the competitive process among providers in terms of both prices and qualities. Competition is influenced among other factors by the status of providers as in-plan or out-of-plan care providers. Also, we face a moral hazard of provider choice related to the trade-off between freedom to choose and the need to hold down costs.Our main findings are that we can define a reimbursement scheme when decisions on prices and qualities are taken simultaneously (that we relate to primary health care sectors) such that the first-best allocation is achieved. In contrast, some type of regulation is needed to achieve the optimal solution when decisions are sequential (specialized health care sector). We also derive some normative conclusions on the way price controls should be implemented in some European Union Member States.

One of the mechanisms that is implemented in the cost containment wave in the health care sectors in western countries is the definition, by the third-party payer, of a set of preferred providers. The insured patients have different access rules to such providers when ill. The rules specify the co-payments and the indemnity the patient obtains if patronizing an out-of-plan care provider. We propose to study the competitive process among providers in terms of both prices and qualities. Competition is influenced among other factors by the status of providers as in-plan or out-of-plan care providers. Also, we face a moral hazard of provider choice related to the trade-off between freedom to choose and the need to hold down costs.Our main findings are that we can define a reimbursement scheme when decisions on prices and qualities are taken simultaneously (that we relate to primary health care sectors) such that the first-best allocation is achieved. In contrast, some type of regulation is needed to achieve the optimal solution when decisions are sequential (specialized health care sector). We also derive some normative conclusions on the way price controls should be implemented in some European Union Member States.

In several instances, third-party payers negotiate prices of health care services with providers. We show that a third-party payer may prefer to deal with a professional association than with the sub-set constituted by the more efficient providers, and then apply the same price to all providers. The reason for it is the increase in the bargaining position of providers. The more efficient providers are also the ones with higher profits in the event of negotiation failure. This allows them to extract a higher surplus from the third-party payer.JEL numbers: I11, I18