Choosing among hospitals in the subsidized health insurance system of China: A sequential game approach

Using tax revenues to subsidize health insurance and to achieve safe and effective health services has become an important means of health care reform for governments. However, how to select designated hospitals or specific medical facilities that allow as many patients as possible to afford medicine and treatment is a difficult problem that the governments of some countries must face. In this paper, we try to address the problem by constructing a sequential game model and presenting an application under China's new cooperative medical scheme (NCMS). We consider a market with two different hospital quality levels and give the optimal decision of the government. Our results show the following: (1) more NCMS-designated hospitals approved by the government may not guarantee that more patients obtain medical services, which depends on the financial budget and the medical service levels. When the budget is large enough, subsidizing both levels of hospitals is optimal. Otherwise, the government should approve only one level. (2) A larger difference between the medical service levels of different hospitals leads to a smaller number of patients who can obtain medical services. In other words, a large service level difference between hospitals harms the goal of the government. (3) The number of hospital patients increases as the medical budget increases.