Competition and quality in health care markets: a differential-game approach

Readmission treatment price and product quality in the hospital sector

In this paper, we study the effect of readmission treatment payment in a dynamic framework characterised by competition among hospitals and sluggish beliefs of patients concerning the service quality. We find that the effect of readmission treatment payment depends on the interplay between the effect of quality in lowering readmissions and its effect on future demand. When the readmission occurrence strongly depends on the service quality, the higher the readmission treatment payment for hospitals, the lower the incentive to provide quality. Instead, when readmission depends barely on quality, the readmission payment acts as the treatment price for first admissions, and thus it reinforces the incentive to provide quality. We also show that the detrimental effect of readmission payments on quality are fed by a high degree of demand sluggishness, that is, by situation where current quality has modest effect on future demand changes. Our findings are robust to different equilibrium concepts of the differential game (i.e., open-loop and state-feedback). The results suggest that a discounted regulated price for readmission can be an effective (and cost-free) policy tool to improve health care quality, especially when the market is characterised by sluggish beliefs about quality.

Dynamic hospital competition under rationing by waiting times

We develop a dynamic model of hospital competition where (i) waiting times increase if demand exceeds supply; (ii) patients choose a hospital based in part on waiting times; and (iii) hospitals incur waiting time penalties. We show that, whereas policies based on penalties will lead to lower waiting times, policies that promote patient choice will instead lead to higher waiting times. These results are robust to different game-theoretic solution concepts, designs of the hospital penalty structure, and patient utility specifications. Furthermore, waiting time penalties are likely to be more effective in reducing waiting times if they are designed with a linear penalty structure, but the counterproductive effect of patient choice policies is smaller when penalties are convex. These conclusions are partly derived by calibration of our model based on waiting times and elasticities observed in the English NHS for a common treatment (cataract surgery).

Regional regulators in health care service under quality competition: A game theoretical model

In several countries, health care services are provided by public and/or private subjects, and they are reimbursed by the government, on the basis of regulated prices (in most countries, diagnosis-related group). Providers take prices as given and compete on quality to attract patients. In some countries, regulated prices differ across regions. This paper focuses on the interdependence between regional regulators within a country: It studies how price setters of different regions interact, in a simple but realistic framework. Specifically, we model a circular city as divided in two administrative regions. Each region has two providers and one regulator, who sets the local price. Patients are mobile and make their choice on the basis of provider location and service quality. Interregional mobility occurs in the presence of asymmetries in providers' cost efficiency, regulated prices, and service quality. We show that the optimal regulated price is higher in the region with the more efficient providers; we also show that decentralisation of price regulation implies higher expenditure but higher patients' welfare.

Contracting with General Dental Services: a mixed-methods study on factors influencing responses to contracts in English general dental practice

Background

Independent contractor status of NHS general dental practitioners (GDPs) and general medical practitioners (GMPs) has meant that both groups have commercial as well as professional identities. Their relationship with the state is governed by a NHS contract, the terms of which have been the focus of much negotiation and struggle in recent years. Previous study of dental contracting has taken a classical economics perspective, viewing practitioners’ behaviour as a fully rational search for contract loopholes. We apply institutional theory to this context for the first time, where individuals’ behaviour is understood as being influenced by wider institutional forces such as growing consumer demands, commercial pressures and challenges to medical professionalism. Practitioners hold values and beliefs, and carry out routines and practices which are consistent with the field’s institutional logics. By identifying institutional logics in the dental practice organisational field, we expose where tensions exist, helping to explain why contracting appears as a continual cycle of reform and resistance.

Aims

To identify the factors which facilitate and hinder the use of contractual processes to manage and strategically develop General Dental Services, using a comparison with medical practice to highlight factors which are particular to NHS dental practice.

Methods

Following a systematic review of health-care contracting theory and interviews with stakeholders, we undertook case studies of 16 dental and six medical practices. Case study data collection involved interviews, observation and documentary evidence; 120 interviews were undertaken in all. We tested and refined our findings using a questionnaire to GDPs and further interviews with commissioners.

Results

We found that, for all three sets of actors (GDPs, GMPs, commissioners), multiple logics exist. These were interacting and sometimes in competition. We found an emergent logic of population health managerialism in dental practice, which is less compatible than the other dental practice logics of ownership responsibility, professional clinical values and entrepreneurialism. This was in contrast to medical practice, where we found a more ready acceptance of external accountability and notions of the delivery of ‘cost-effective’ care. Our quantitative work enabled us to refine and test our conceptualisations of dental practice logics. We identified that population health managerialism comprised both a logic of managerialism and a public goods logic, and that practitioners might be resistant to one and not the other. We also linked individual practitioners’ behaviour to wider institutional forces by showing that logics were predictive of responses to NHS dental contracts at the dental chair-side (the micro level), as well as predictive of approaches to wider contractual relationships with commissioners (the macro level).

Conclusions

Responses to contracts can be shaped by environmental forces and not just determined at the level of the individual. In NHS medical practice, goals are more closely aligned with commissioning goals than in general dental practice. The optimal contractual agreement between GDPs and commissioners, therefore, will be one which aims at the ‘satisfactory’ rather than the ‘ideal’; and a ‘successful’ NHS dental contract is likely to be one where neither party promotes its self-interest above the other. Future work on opportunism in health care should widen its focus beyond the self-interest of providers and look at the contribution of contextual factors such as the relationship between the government and professional bodies, the role of the media, and providers’ social and professional networks.

Funding

The National Institute for Health Research Health Services and Delivery Research programme.

Inter-regional competition and quality in hospital care

This study analyzes the effect of episode-of-care payment and patient choice on waiting time and the comprehensive quality of hospital care. The study assumes that two hospitals are located in two cities with different population sizes and compete with each other. We find that the comprehensive quality of hospital care as well as waiting time of both hospitals improve with an increase in payment per episode of care. However, we also find that the extent of these improvements differs according to the population size of the cities where the hospitals are located. Under the realistic assumptions that hospitals involve significant labor-intensive work, we find the improvements in comprehensive quality and waiting time in a hospital located in a small city to be greater than those in a hospital located in a large city. The result implies that regional disparity in the quality of hospital care decreases with an increase in payment per episode of care.

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

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.