A Competitive Process for Procuring Health Services: A Review of Principles with an Application to Cataract Services

David Dranove, Cory Capps and Leemore Dafny
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Cory Capps: Bates White
Leemore Dafny: Kellogg Graduate School of Management, Northwestern University

SPP Research Papers, 2009, vol. 2, issue 5

Abstract: Government agencies employ a variety of mechanisms for securing goods and services from the private sector. These include posting prices, reimbursing for costs, and soliciting competitive bids. Procurement of healthcare services offers several unique challenges. The supplier can influence the quantity of services provided. It is often difficult to even specify in advance exactly what services are to be purchased. Lastly, quality is difficult to measure. Healthcare purchasers have deployed a variety of payment mechanisms to cope with these challenges. We apply the theory of procurement to the case of cataract surgery. We recommend implementing a system that combines a gatekeeper with competitive bidding among operating physicians who must perform all necessary services, including treatment for complications, within a global fee. We conclude by discussing the strengths and limitations of this proposal.

Date: 2009
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