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Regulating providers' reimbursement in a mixed market for health care

McGuire, Alistair and Rickman, Neil (1999) Regulating providers' reimbursement in a mixed market for health care. Scottish Journal of Political Economy, 46 (1). pp. 53-71. ISSN 0036-9292

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Identification Number: 10.1111/1467-9485.00120


Hospitals can be reimbursed for their costs in many ways. Several authors have investigated the effects of these reimbursement rules on physician incentives and, therefore, on the quantity of services provided to patients. A form of (linear) cost-sharing tends to emerge as the socially efficient reimbursement policy. We present a model of hospital reimbursement, based on Ellis and McGuire (1986). The new feature is that physicians can supply private health care services to a patient, as well as public sector ones; a common institutional arrangement in many health care systems. We investigate the optimal public sector reimbursement rule given that private market incentives must now be taken into account. Public sector cost-sharing remains socially efficient, but it is generally non-linear: the precise details depend on whether public and private services are substitutes or complements and on the degree of social efficiency achieved in the private sector. Other reimbursement schemes exhibit optimality properties not present in Ellis and McGuire's work.

Item Type: Article
Official URL:
Additional Information: © 1999 Scottish Economic Society
Divisions: Social Policy
LSE Health
Subjects: H Social Sciences > HB Economic Theory
Date Deposited: 03 Feb 2009 16:51
Last Modified: 20 Sep 2021 02:35

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