Optimal Reimbursement Policy in Health Care: Competition, Ownership Structure and Quality Provision

  • 1 Hanken School of Economics, P.O. Box 479, 00101, Helsinki, Finland
  • 2 Department of Management, UTM, Institute for Management and Innovation, University of Toronto, 3359 Mississauga Rd, Mississauga, Canada
Rune Stenbacka and Mihkel Tombak
  • Department of Management, UTM, Institute for Management and Innovation, University of Toronto, 3359 Mississauga Rd, Mississauga, ON L5L 1C6, Canada
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Abstract

We analytically characterize the effects of ownership and competition in the healthcare industry on quality provision, market coverage and optimal reimbursement policy. A for-profit monopoly selects a lower quality than a nonprofit supplier, and the socially optimal reimbursement rate with a nonprofit monopoly exceeds that with a for-profit monopoly. We establish that the optimal repayment policy is invariant to the introduction of competition by a for-profit high-quality supplier. Thus, market coverage is invariant to the introduction of competition, whereas consumers with a higher willingness to pay for quality are better off with competition.

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