Health Care Providers Payments Regulation when Horizontal and Vertical Differentiation Matter

David Bardey, Chiara Canta () and Jean-Marie Lozachmeur

No 10-164, TSE Working Papers from Toulouse School of Economics (TSE)

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. In particular, some cost reimbursement might be optimal even for higher levels of transportation costs.

JEL-codes: I18 L51 (search for similar items in EconPapers)
Date: 2010-03
New Economics Papers: this item is included in nep-com, nep-hea and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Working Paper: Health Care Providers Payments Regulation when Horizontal and Vertical Differentiation Matter (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:tse:wpaper:22781

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