Competition in Health Care Markets: Treatment Volume and Quality
CentER Discussion Paper Series No. 2018-013
41 Pages Posted: 26 Apr 2018
Date Written: April 9, 2018
This paper introduces a workhorse model to analyze the effects of provider and insurer competition in health care markets. The two contracting imperfections we focus on are the following: (i) whether or not a patient should be treated and (ii) treatment quality are both not contractible. We derive conditions under which the market can implement first best quality and volume with the optimal competition intensities. First best competition intensity is strictly positive in both markets. If there is under-investment in quality, provider competition should be increased. Increasing insurer competition tends to increase treatment volume. If the planner cannot make the provider market competitive enough, it is optimal to increase insurer competition beyond its first best level thereby creating over-treatment.
Keywords: competition in health care markets, insurer competition, provider competition
JEL Classification: I13, I11
Suggested Citation: Suggested Citation