Introduction: The Industrial Organization of Health Care
Thomas G. McGuire and Michael H. Riordan
Choice of Treatment Intensities by a Nonprofit Hospital Under Prospective Pricing
William P. Rogerson
Under prospective pricing, payers for health care essentially use price regulation of hospitals as a way of indirectly regulating the provision of treatment intensity. This paper presents a theory of how a nonprofit hospital selects treatment intensities for its products given the payer's choice of prices and then determines how the payer should select prices in light of this theory. The main result is that, in equilibrium, the ratio of price to marginal cost will vary across products inversely with the elasticity of demand with respect to treatment intensity.
Under prospective pricing, payers for health care essentially use price regulation of hospitals as a way of indirectly regulating the provision of treatment intensity. This paper presents a theory of how a nonprofit hospital selects treatment intensities for its products given the payer's choice of prices and then determines how the payer should select prices in light of this theory. The main result is that, in equilibrium, the ratio of price to marginal cost will vary across products inversely with the elasticity of demand with respect to treatment intensity.
Excessive Investment in Hospital Capacities
Esther Gal-Or
In the present study I identify an inherent characteristic of health care markets that may lead to excessive investment by hospitals even when compensated according to a prospective reimbursement rule. It is demonstrated that the stochastic nature of the demand for medical services combined with the lumpiness of investment decisions may give rise to excessive investment when multiple hospitals select independently their levels of capacities. The source for the excessive incentives to invest is the difficulty of one hospital to internalize properly the externality generated by its investment decisions.
In the present study I identify an inherent characteristic of health care markets that may lead to excessive investment by hospitals even when compensated according to a prospective reimbursement rule. It is demonstrated that the stochastic nature of the demand for medical services combined with the lumpiness of investment decisions may give rise to excessive investment when multiple hospitals select independently their levels of capacities. The source for the excessive incentives to invest is the difficulty of one hospital to internalize properly the externality generated by its investment decisions.
Payer Competition and Cost Shifting in Health Care
Jacob Glazer and Thomas G. McGuire
This paper studies a model in which two payers contract with one hospital. True costs per patient are not a possible basis for payment, and contracts can only be written on the basis of allocated cost. Payers choose a contract that is fully prospective or fully based on cost allocation, or a payment scheme that would give some weight to each of these two.
This paper studies a model in which two payers contract with one hospital. True costs per patient are not a possible basis for payment, and contracts can only be written on the basis of allocated cost. Payers choose a contract that is fully prospective or fully based on cost allocation, or a payment scheme that would give some weight to each of these two.
Health Care Payment Systems: Cost and Quality Incentives
Ching-to Albert Ma
This paper compares the cost and quality incentive effects of cost reimbursement and prospective payment systems in the health industry. When a provider cannot refuse patients who require high treatment costs or discriminate patients by qualities, optimally designed prospective payments can implement the efficient quality and cost reduction efforts, but cost reimbursement cannot induce any cost incentive.
This paper compares the cost and quality incentive effects of cost reimbursement and prospective payment systems in the health industry. When a provider cannot refuse patients who require high treatment costs or discriminate patients by qualities, optimally designed prospective payments can implement the efficient quality and cost reduction efforts, but cost reimbursement cannot induce any cost incentive.
Designing Optional No-Fault Insurance Policies for Health Care Systems
David E. M. Sappington
Legislation to create optional no-fault insurance (ONFL) programs has recently been enacted in Florida and Virginia. ONFI programs provide compensation to patients when certain medical complications arise, provided the patient agrees not to sue the doctor for additional damages. The optimal design of ONFI programs is explored in this paper, focusing on the incentive effects of ONFI programs.
Legislation to create optional no-fault insurance (ONFL) programs has recently been enacted in Florida and Virginia. ONFI programs provide compensation to patients when certain medical complications arise, provided the patient agrees not to sue the doctor for additional damages. The optimal design of ONFI programs is explored in this paper, focusing on the incentive effects of ONFI programs.
Local Hospital Competition in Large Metropolitan Areas
Larry M. Manheim, Gloria J. Bazzoli and Min-Woong Sohn
This paper uses origin-destination data to define geographic local hospital markets in large metropolitan statistical areas (MSAs). Results support past findings of service rather than price competition, with negative-cost Herfandahl-Hirschman indexes relationships at the market level (and sub-MSA level) and with profit margins negatively related to hospital market competition.
This paper uses origin-destination data to define geographic local hospital markets in large metropolitan statistical areas (MSAs). Results support past findings of service rather than price competition, with negative-cost Herfandahl-Hirschman indexes relationships at the market level (and sub-MSA level) and with profit margins negatively related to hospital market competition.
Recent Theory and Evidence on Competition in Hospital Markets
David Dranove and William D. White
We are grateful to Frank Wolak,‘Thomas McGuire, and other participants in the Veterans Administration/Boston University symposium “The Industrial Organization of Health Care” for comments. Any errors are our own.
We are grateful to Frank Wolak,‘Thomas McGuire, and other participants in the Veterans Administration/Boston University symposium “The Industrial Organization of Health Care” for comments. Any errors are our own.
Issues in the Industrial Organization of the Market for Physician Services
Martin Gaynor
What is the nature of the industrial organization of the market for physician services? Is the market “competitive?” Are there pareto-relevant market failures, such that there is room for welfare-improving policies? Economists have devoted a great deal of attention to this market, but it remains relatively poorly understood.
What is the nature of the industrial organization of the market for physician services? Is the market “competitive?” Are there pareto-relevant market failures, such that there is room for welfare-improving policies? Economists have devoted a great deal of attention to this market, but it remains relatively poorly understood.
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