Wednesday, July 16, 2014
Jan Boone, Tilburg and Rudy Douven, CPB Netherlands Bureau for Economic Policy Analysis, Erasmus University Rotterdam and Harvard Medical School explain Provider competition and over-utilization in health care.
ABSTRACT: This paper compares the welfare effects of three ways in which health care can be organized: no competition (NC), competition for the market (CfM) and competition on the market (CoM) where the payer offers the optimal contract to providers in each case. We show that CfM is optimal if the payer either has contractible information on provider quality or can enforce cost efficient protocols. If such contractible information is not available NC or CoM can be optimal depending on whether patients react to decentralized information on quality differences between providers and whether payer’s and patients’ preferences are aligned.