The regulation of health care providers' payments when horizontal and vertical differentiation matter

Bardey, David, Canta, Chiara and Lozachmeur, Jean-Marie (2012) The regulation of health care providers' payments when horizontal and vertical differentiation matter. Journal of Health Economics, 31 (5). pp. 691-704.

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Official URL: http://tse-fr.eu/pub/26037

Abstract

This paper analyzes the regulation of payment schemes for health care providers competing in both quality and product differentiation of their services. The regulator uses two instruments: a prospective payment per patient and a cost reimbursement rate. When the regulator can only use a prospective payment, the optimal price involves a trade-off between the level of quality provision and the level of horizontal differentiation. If this pure prospective payment leads to underprovision of quality and overdifferentiation, a mixed reimbursement scheme allows the regulator to improve the allocation efficiency. This is true for a relatively low level of patients’ transportation costs. We also show that if the regulator cannot commit to the level of the cost reimbursement rate, the resulting allocation can dominate the one with full commitment. This occurs when the transportation cost is low or high enough, and the full commitment solution either implies full or zero cost reimbursement.

Item Type: Article
Language: English
Date: September 2012
Refereed: Yes
JEL codes: I18 - Government Policy; Regulation; Public Health
L51 - Economics of Regulation
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 09 Jul 2014 17:27
Last Modified: 07 Mar 2018 13:22
OAI ID: oai:tse-fr.eu:26037
URI: http://publications.ut-capitole.fr/id/eprint/15342

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