This study presents a model of optimal contracting for health services in the presence of excess demand and waiting times. We assume that: i) hospitals differ in their demand for treatment; ii) potential demand is private information of the provider; iii) specialists can dump patients; iv) activity and waiting times are contractible. A separating equilibrium exists when it is optimal for the purchaser to contract more activity and longer waiting times to those hospitals with higher demand. Hospitals with low demand gain informational rents. A pooling equilibrium may also occur.
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