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Hospital Competition under Regulated Prices: Application to Urban Health Sector Reforms in China

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  • Karen Eggleston
  • Winnie Yip

Abstract

We develop a model of public-private hospital competition under regulated prices, recognizing that hospitals are multi-service firms and that equilibria depend on the interactions of patients, hospital administrators, and physicians. We then use data from China to calibrate a simulation model of the impact of China's recent payment and organizational reforms on cost, quality and access. Both the analytic and simulation results show how providing implicit insurance through distorted prices leads to over/under use of services by profitability, which in turn fuels cost escalation and reduces access for those who cannot afford to self-pay for care. Simulations reveal the benefits of mixed payment and expanded insurance cover for mitigating these distortions.

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  • Karen Eggleston & Winnie Yip, 2004. "Hospital Competition under Regulated Prices: Application to Urban Health Sector Reforms in China," International Journal of Health Economics and Management, Springer, vol. 4(4), pages 343-368, December.
    • Handle: RePEc:kap:ijhcfe:v:4:y:2004:i:4:p:343-368
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    2. Lijian Qin & Suwen Pan & Chenggang Wang & Zhongyi Jiang, 2012. "Adverse selection in China's New Rural Cooperative Medical Scheme," China Agricultural Economic Review, Emerald Group Publishing Limited, vol. 4(1), pages 69-83, January.
    3. Liu, Gordon G. & Li, Lin & Hou, Xiaohui & Xu, Judy & Hyslop, Daniel, 2009. "The role of for-profit hospitals in medical expenditures: Evidence from aggregate data in China," China Economic Review, Elsevier, vol. 20(4), pages 625-633, December.
    4. Eggleston, Karen & Wang, Jian & Rao, Keqin, 2008. "From plan to market in the health sector?: China's experience," Journal of Asian Economics, Elsevier, vol. 19(5-6), pages 400-412.
    5. Currie, Janet & Lin, Wanchuan & Meng, Juanjuan, 2014. "Addressing antibiotic abuse in China: An experimental audit study," Journal of Development Economics, Elsevier, vol. 110(C), pages 39-51.
    6. Karen Eggleston & Anupa Bir, 2009. "Measuring Selection Incentives in Managed Care: Evidence From the Massachusetts State Employee Insurance Program," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 76(1), pages 159-175, March.
    7. Ng, Ying Chu, 2011. "The productive efficiency of Chinese hospitals," China Economic Review, Elsevier, vol. 22(3), pages 428-439, September.
    8. Lu, Liyong & Pan, Jay, 2019. "The association of hospital competition with inpatient costs of stroke: Evidence from China," Social Science & Medicine, Elsevier, vol. 230(C), pages 234-245.
    9. Janet Currie & Wanchuan Lin & Juanjuan Meng, 2012. "Using Audit Studies to Test for Physician Induced Demand: The Case of Antibiotic Abuse in China," NBER Working Papers 18153, National Bureau of Economic Research, Inc.
    10. Zhou, Mei & Zhao, Shaoyang & Fu, Mingwei, 2021. "Supply-induced demand for medical services under price regulation: Evidence from hospital expansion in China," China Economic Review, Elsevier, vol. 68(C).
    11. LIN, Zhijun & YU, Zengbiao & ZHANG, Liqun, 2014. "Performance outcomes of balanced scorecard application in hospital administration in China," China Economic Review, Elsevier, vol. 30(C), pages 1-15.
    12. Wang, Hufeng & Gusmano, Michael K. & Cao, Qi, 2011. "An evaluation of the policy on community health organizations in China: Will the priority of new healthcare reform in China be a success?," Health Policy, Elsevier, vol. 99(1), pages 37-43, January.
    13. Wang, Hufeng, 2009. "A dilemma of Chinese healthcare reform: How to re-define government roles?," China Economic Review, Elsevier, vol. 20(4), pages 598-604, December.
    14. Huazhang Li & Kun Liu & Jianjun Gu & Yimin Zhang & Yun Qiao & Xiaoming Sun, 2017. "The development and impact of primary health care in China from 1949 to 2015: A focused review," International Journal of Health Planning and Management, Wiley Blackwell, vol. 32(3), pages 339-350, July.
    15. Yu Xia & Jing Li & Zhongyang Zhang, 2023. "Effects of price cap regulation on pharmaceutical supply chain under the zero markup drug policy," Operational Research, Springer, vol. 23(4), pages 1-27, December.
    16. Tabea Bork-HÜffer & Frauke Kraas, 2015. "Health Care Disparities in Megaurban China: The Ambivalent Role of Unregistered Practitioners," Tijdschrift voor Economische en Sociale Geografie, Royal Dutch Geographical Society KNAG, vol. 106(3), pages 339-352, July.
    17. Philip H. Brown & Caroline Theoharides, 2009. "Health‐seeking behavior and hospital choice in China's New Cooperative Medical System," Health Economics, John Wiley & Sons, Ltd., vol. 18(S2), pages 47-64, July.
    18. Wang, Jian & Iversen, Tor & Hennig-Schmidt, Heike & Godager, Geir, 2017. "How Changes in Payment Schemes Influence Provision Behavior," HERO Online Working Paper Series 2017:2, University of Oslo, Health Economics Research Programme.
    19. Eggleston, Karen, 2005. "Multitasking and mixed systems for provider payment," Journal of Health Economics, Elsevier, vol. 24(1), pages 211-223, January.
    20. Zhou, Guoliang & Chen, Ran & Chen, Mingsheng, 2020. "Equity in health-care financing in China during the progression toward universal health coverage," China Economic Review, Elsevier, vol. 61(C).
    21. Currie, Janet & Lin, Wanchuan & Meng, Juanjuan, 2013. "Social networks and externalities from gift exchange: Evidence from a field experiment," Journal of Public Economics, Elsevier, vol. 107(C), pages 19-30.
    22. Jia CUI & Shaomin HUANG & Gerald RAMEY, 2009. "China’s Healthcare Reform And Resources Redistribution: Lessons For Emerging Nations," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 4, pages 27-42, November.
    23. Hou, Xiaohui & Coyne, Joseph, 2008. "The emergence of proprietary medical facilities in China," Health Policy, Elsevier, vol. 88(1), pages 141-151, October.
    24. Liyong Lu & Jay Pan, 2021. "Does hospital competition lead to medical equipment expansion? Evidence on the medical arms race," Health Care Management Science, Springer, vol. 24(3), pages 582-596, September.

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    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets

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