Regulating Providers’ Reimbursement in a Mixed Market for Health Care

Abstract

Hospitals can be reimbursed for their costs in many ways. Several authors have investigated the effects of these reimbursement rules on physician incentives and, therefore, on the quantity of services provided to patients. A form of (linear) costsharing tends to emerge as the socially efficient reimbursement policy. We present a model of hospital reimbursement, based on Ellis and McGuire (1986). The new feature is that physicians can supply private health care services to a patient, as well as public sector ones; a common institutional arrangement in many health care systems. We investigate the optimal public sector reimbursement rule given that private market incentives must now be taken into account. Public sector costsharing remains socially efficient, but it is generally non-linear: the precise details depend on whether public and private services are substitutes or complements and on the degree of social efficiency achieved in the private sector. Other reimbursement schemes exhibit optimality properties not present in Ellis and McGuire's work.

Public versus private health care in a national health service

“…Marchand and Schroyen (2001) analyse design of contracts to NHS doctors that induce an optimal mixture of public and private health care when the government takes distributional aspects into account. 3 Rickman and McGuire (1999), (R&M) building on the model of Ellis and McGuire (1986), is closely related to our study. However, their approach is di¤erent from ours in many respects.…”

“…1 5 Note that we assume that physicians are not taking into account any patient bene…t from health care when they maximize their utility. This non-altruistic approach is in contrast to some of the received literature, for example Rickman and McGuire (1999), where the patient's bene…t enters the physician's utility function in a direct way. In principle, though, it should be simple to encompass altruism in our model.…”

A theoretical approach to dual practice regulations in the health sector

“…Those NHS doctors who work under a maximum part-time contract are allowed to practice privately without earning restrictions by giving up one eleventh of their NHS salary (European Observatory on Health Systems, 2004). Similarly, in France, public hospitals employ both full-time and part-time physicians who can also provide private services subject to the restriction that income from private fees is limited to 30% of physician total income (Rickman and McGuire, 1999). 7 In Austria, Ireland and Italy physicians are encouraged to perform private services within government hospitals and the share of beds allocated to privately insured patients is legally defined.…”

“…8 There has been some research on physicians' incentives as dual providers. Rickman and McGuire (1999) concentrate on the implications of the fact that a doctor can offer both public and private services to the same patient and examine the optimal public reimbursement for doctors who are dual providers. Barros and Olivella (2002) and González (2005) analyze the physician's decision to "cream-skim" patients in a context with waiting lists in the public sector.…”

Restricting private-sector practice using contracts

“…12 As with exclusivity clauses, income limits may prompt some physicians, particularly senior physicians whose services command higher prices, to opt out of the public system altogether or to relocate. There is also evidence of enforcement problems with income limits: data from the UK show that its 10% income cap was routinely violated until it was dropped from contract renewals in 2003.…”