Models of Negotiation and Bargaining in Health Care

Abstract

IntroductionUnder traditional health insurance arrangements, citizens were covered by some insurance scheme. When sick, insurance arrangements allowed citizens to go to a health care provider, pay the price of the care received and be reimbursed later. Alternatively, the care provider would be owned by the insurer (like in integrated national health systems) and the patient paid nothing at the moment of consumption. In such arrangements, providers would freely set their prices or have no price to set at all (in an NHS-like system).Recent developments in health care financing include independent institutions that negotiate the prices with the financing institution. This is true with respect to health maintenance organizations (HMOs), managed care in general, but also in national health systems where decentralization and the split between provision and financing is implemented.In this scenario, negotiation over contractual terms, including prices as one major element, becomes a relevant issue in the analysis of performance of health care systems. Both empirical and theoretical analyses have been produced, and are reviewed below.This chapter reflects our views and preferences. It does not aim to be an encyclopaedic view of the existing literature on bargaining in health care. Instead, we try to highlight the new developments associated with explicit bargaining between third-party payers and providers of health care (a relation which is, in itself, only one of many that exist in the health care sector).Bargaining theory has a long tradition in the economics literature. However, it is only recently that this approach has found space in the analysis of the health care sector. The recognition of the strategic interaction among agents in the health care sector (patients, providers and third-party payers) came with the application of models borrowed from the industrial organization tradition dating from the 1970s. It was in the early 1990s when a step forward was taken with the eruption of the models of bargaining (see for example, Osborne and Rubinstein, 1990, for a nice presentation) In many situations the health care sector has the structure of a bilateral monopoly/oligopoly. In this context, bargaining becomes the natural way to approach the interactions among agents.Most economic analyses of contract design in health care in fact assume that the party that moves first, typically the payer, proposes a take-it-or-leave-it offer to the provider. We take here a broader view, looking at other types of negotiation procedures. We do not discuss issues related to contract design, which are taken up in chapter 22 by Chalkley in this Companion.We focus here on models of explicit bargaining between two parties, which we call the payer and the provider. On theoretical grounds, simple bargaining models can have their results transposed in a straightforward way: higher bargaining power and higher