Price adjustment in the hospital sector.
We analyse the properties of optimal price adjustment to hospitals when no lump-sum transfers are allowed and when prices differ to reflect observable exogenous differences in costs. We find that: (a) when the marginal benefit from treatment is decreasing and the cost function is the power function, price adjustment for hospitals with higher costs is positive but partial; if the marginal benefit is constant, the price is identical across providers; (b) if the cost function is exponential or it is separable in monetary and non-monetary costs (and linear in monetary costs), price adjustment is positive even when the marginal benefit is constant; (c) higher inequality aversion of the purchaser increases concentration in prices and lowers concentration in quantities; (d) if some dimensions of costs are private information, a higher correlation between the observable and unobservable cost component increases the optimal price for providers whose observable costs are above the average.
Miraldo
Marisa
M
Imperial College London, Business School, Tanaka Building, South Kensington Campus, London, UK. m.miraldo@imperial.ac.uk
Siciliani
Luigi
L
Street
Andrew
A
D003132:Commerce; D004469:Economics, Hospital; D019981:Health Care Sector / Q000191:economics*; D017721:Hospital Costs; D006801:Humans; D018803:Models, Economic; D011787:Quality of Health Care