Hospital competition in a national health service: Evidence from a patient choice reform.

We study the impact of exposing hospitals in a National Health Service (NHS) to non-price competition by exploiting a patient choice reform in Norway in 2001. The reform facilitates a difference-in-difference approach due to plausibly exogenous (geographical) variation in pre-reform market structure. Employing rich, administrative data, covering the universe of hospital admissions from 1998 to 2005, we estimate models with hospital and treatment (DRG) fixed-effects and use only emergency admissions to limit patient selection issues. The results show that hospitals in more competitive areas have a sharper reduction in AMI mortality but no effect on stroke mortality. We also find that exposure to competition reduces all-cause mortality, shortens length of stay, but increases readmissions, though the effects are small in magnitude. In years with high (DRG) prices, the negative effect on readmissions almost vanishes. Finally, exposure to competition tends to reduce waiting times and increase admissions, but the effects must be interpreted with care as the outcomes include elective treatments.

Reference pricing with endogenous generic entry.

Reference pricing intends to reduce pharmaceutical expenditures by increasing demand elasticity and stimulating generic competition. We develop a novel model where a brand-name producer competes in prices with several generics producers in a market with brand-biased and brand-neutral consumers. Comparing with coinsurance, we show that reference pricing, contrary to policy makers' intentions, discourages generic entry, as it induces the brand-name producer to price more aggressively. Thus, the net effect of reference pricing on drug prices is ambiguous, implying that reference pricing can be counterproductive in reducing expenditures. However, under price regulation, we show that reference pricing may stimulate generic entry, since a binding price cap weakens the aggressive price response by the brand-name producer. This may explain mixed empirical results on the competitive effects of reference pricing. Finally, we show that reference pricing may be welfare improving when accounting for brand preferences despite its adverse effects on entry and prices.

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.