Research On Regulation And Provider Comnetition In Health Care Markets

While organizing and producing health care exclusively by market mechanism would result in major problem of ruining fairness and efficiency because of healthcare’s particularity, financing and supplying health care exclusively by government would also lead to lack of incentives and efficiency. Under the background of many countries trying to find the balance point of government intervention and market mechanism in their health reform, China has also established the principle of "coordination of dominant role of government and employed role of market mechanism" in the next round of health reform. This dissertation focuses on "employing of market mechanism", especially introducing or intensifying competition among suppliers as an instrument of government, analyses effects of various bundled instruments in the context of regulation.Aimed at fighting against familiar overtreatment and inefficiencies in China’s health system, we further analyze the bundled instruments of "introducing competition under prospective payment (DRG or Capitation)", that is,"DRG bundled with competition"(could be well used in the reform of payment mechanism of public hospitals) following Brekke et al.(2008、2011a). We find that introducing competition among monopolistic suppliers would not necessarily increase quality. Decreasing switching cost, increasing regulated price, or introducing competition increases profit-seeking (without altruism) hospitals’quality, but increasing proportion of high-benefit patient decreases quality. We also find that only when the regulated price is under a critical value can introducing competition between monopoly hospitals increase social welfare. This conclusion not only gives a theoretical support of a system of competitive gate-keeping in community health center under Capitation, but also implies that DRG’s rate should be designed based on clinic path, not on the average cost incurred previously in overtreatment context, otherwise, introducing competition would harm welfare. Meanwhile, we identify main four ways of exogenously introducing competition and accordingly survey related empirical research to give some evidence to some positive conclusions derived above.Next, we relax the fixed price (DRG or Capitation) assumption in the last chapter, analyze price and quality competition in a duopoly hospital market, and focus on effect of change of coinsurance rate and budget regulation on hospital behavior and welfare. Different from the result available, we find that decrease of coinsurance rate need not promote equilibrium price. When the degree of altruism is high enough, decrease of coinsurance rate pulls the price down. Contrary to our intuition, we also find that decrease of coinsurance rate need not increase patient’s utility, decrease of coinsurance rate harms patient’s if the initial rate is relatively low, but increase of degree of altruism must benefit patients. Then, based on the duopoly model, we analyze theoretically the performance of some kinds of budget regulation and find that separation of reimbursement and revenue tightens pressure from cost control, however, it results in poor quality and gives suppliers strong incentives to dump patients. If the budget can be contracted upon quantity or quality, then optimal budget management can reach first best. Cost-based budget management can implement first best quality level, but at the same time results in cost inefficiency. Last, we preliminarily discuss the separation of drugs selling from medical services aiming at suppressing the profitability of dominant public hospitals. The result shows that the very policy causes the suppliers to reduce their proportion of drugs in profits while increase medical service’s, and may lead to both cost inefficiency and poor quality.In the second half of the dissertation, based on the critical assumption of information asymmetry between physician and patient, we employ models of signaling game to analyze effect of changes in external condition(regulated price, information or competition condition) and internal condition(professional ethics or liability)on relationship of physician and patient in credence goods (or expert service)market. First, following Fong(2005). Dulleck&Kerschbamer(2006)and Liu(2011),we analyze an opportunistic behavior of physician, that is,dumping in credence goods market. We show that the physician may dump high cost patients even in flexible price context, different from traditional view that only under prospective payment couldthe supplier dump patients. If physician sticks to liability or is in a competitive condition, dumping can be supressed, and this result is robust to other sorts of patient’idiosyncrasy, that is, the patients have different value of successful treatment instead of different cost to treat for the suppliers.Second, following Pitchik&Schotter(1993), Pesendorfer&Wolinsky(2003)and Liu(2012),we further analyze fraud of supplier in a complex regulated price context. We show that if probability of serious illness is not high, the regulator’s fixed diagnosis fee below marginal cost (common phenomena in China) will not force physician to cheat (overtreat), for parts of patients reject the high quality treatment (overtreatment) recommendation, which also results in loss of efficiency. As the treatment price cap regulation is imposed on additionally, fraud must occur in the healthcare market. In the mixed strategy equilibrium, the physician cheats (mild illness patients) with strict positive probability and the patients reject high quality treatment with strict positive probability. The stronger the strength of regulation (the lower the regulated price), the more frequently the physician cheats. When the regulated price is below some critical value, or the probability of serious illness is high, fraud will be full of the expert service market. We then study a price competition environment and find that under below-cost diagnosis fee regulation, treatment price competition could not withhold fraud, but is sure to improve patients’ utility; we characterize the condition with which the mixed strategy equilibrium is the unique equilibrium. In the flexible price environment, there are multiple Pareto efficient equilibria, in which physician’s pricing strategies realize credible honestly treating commitment and the patients reach their maximal utility.We conclude the dissertation by reviewing the related important literature on theory of expert services or credence goods market with summarizing the unexpected effects of competitionin particular situation, which could be regarded as a complementary illustration of possible extension of the above two research work on credence goods market.