Effects of asymmetric medical insurance subsidy on hospitals competition under non-price regulation

International Journal for Equity in Health, Nov 2016

Background Poor medical care and high fees are two major problems in the world health care system. As a result, health care insurance system reform is a major issue in developing countries, such as China. Governments should take the effect of health care insurance system reform on the competition of hospitals into account when they practice a reform. This article aims to capture the influences of asymmetric medical insurance subsidy and the importance of medical quality to patients on hospitals competition under non-price regulation. Methods We establish a three-stage duopoly model with quantity and quality competition. In the model, qualitative difference and asymmetric medical insurance subsidy among hospitals are considered. The government decides subsidy (or reimbursement) ratios in the first stage. Hospitals choose the quality in the second stage and then support the quantity in the third stage. We obtain our conclusions by mathematical model analyses and all the results are achieved by backward induction. Results The importance of medical quality to patients has stronger influence on the small hospital, while subsidy has greater effect on the large hospital. Meanwhile, the importance of medical quality to patients strengthens competition, but subsidy effect weakens it. Besides, subsidy ratios difference affects the relationship between subsidy and hospital competition. Furthermore, we capture the optimal reimbursement ratio based on social welfare maximization. More importantly, this paper finds that the higher management efficiency of the medical insurance investment funds is, the higher the best subsidy ratio is. Conclusions This paper states that subsidy is a two-edged sword. On one hand, subsidy stimulates medical demand. On the other hand, subsidy raises price and inhibits hospital competition. Therefore, government must set an appropriate subsidy ratio difference between large and small hospitals to maximize the total social welfare. For a developing country with limited medical resources and great difference in hospitals such as China, adjusting the reimbursement ratios between different level hospitals and increasing medical quality are two reasonable methods for the sustainable development of its health system. JEL Classification: I11, L51, I13.

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Effects of asymmetric medical insurance subsidy on hospitals competition under non-price regulation

Wang and Nie International Journal for Equity in Health Effects of asymmetric medical insurance subsidy on hospitals competition under non-price regulation Chan Wang 0 1 3 Pu-yan Nie 1 2 0 Institute of Industrial Economics, Jinan University , Guangzhou 510632 , People's Republic of China 1 JEL Classification: I11 , L51, I13 2 Guangdong University of Finance & Economics , Guangzhou 510320 , People's Republic of China 3 Institute of Industrial Economics, Jinan University , Guangzhou 510632 , People's Republic of China Background: Poor medical care and high fees are two major problems in the world health care system. As a result, health care insurance system reform is a major issue in developing countries, such as China. Governments should take the effect of health care insurance system reform on the competition of hospitals into account when they practice a reform. This article aims to capture the influences of asymmetric medical insurance subsidy and the importance of medical quality to patients on hospitals competition under non-price regulation. Methods: We establish a three-stage duopoly model with quantity and quality competition. In the model, qualitative difference and asymmetric medical insurance subsidy among hospitals are considered. The government decides subsidy (or reimbursement) ratios in the first stage. Hospitals choose the quality in the second stage and then support the quantity in the third stage. We obtain our conclusions by mathematical model analyses and all the results are achieved by backward induction. Results: The importance of medical quality to patients has stronger influence on the small hospital, while subsidy has greater effect on the large hospital. Meanwhile, the importance of medical quality to patients strengthens competition, but subsidy effect weakens it. Besides, subsidy ratios difference affects the relationship between subsidy and hospital competition. Furthermore, we capture the optimal reimbursement ratio based on social welfare maximization. More importantly, this paper finds that the higher management efficiency of the medical insurance investment funds is, the higher the best subsidy ratio is. Conclusions: This paper states that subsidy is a two-edged sword. On one hand, subsidy stimulates medical demand. On the other hand, subsidy raises price and inhibits hospital competition. Therefore, government must set an appropriate subsidy ratio difference between large and small hospitals to maximize the total social welfare. For a developing country with limited medical resources and great difference in hospitals such as China, adjusting the reimbursement ratios between different level hospitals and increasing medical quality are two reasonable methods for the sustainable development of its health system. Quality competition; Medical insurance subsidy; Management efficiency; Game theory - Background Subsidized health insurance programs are often employed by developing countries to provide basic health care to their poor and uninsured citizens. In China, the basic medical insurance is constituted by three groups, the Medical Insurance for Urban Workers, the Urban Resident Basic Medical Insurance, and the New Rural Cooperative Medical. Those three types of insurance are supported with different levels of medical subsidies and people can only choose one of those three. Meanwhile, patients obtain diverse medical subsidies when they go to different grade hospitals. Health insurance subsidy accounts for a vast majority of expenditures of the government’s investment in the medical industry. However, poor access and high fees are still the two major problems in China’s health system. Medical quality and medical subsidy are two important factors influencing health seeking behavior of patients. We define medical quality as cure ability and service level of the hospital and medical quantity as the number of patients a hospital treats in this study. Both medical quality and subsidy influence health-seeking behavior of patients. Medical quality has positive influence on patients because higher cure ability means the patient has higher probability to be cured and higher service level represents that patients have higher satisfaction. Medical subsidy signifies that the government will pay part of the expenditures of patients if they go to see the doctor. Many countries reimburse patients with some fixed amount. For example, for a hip replacement operation, the hospital will get 1000 USD. But under the current medical insurance policy, the Chinese government chooses to reimburse the patient with a certain ratio of his or her expenditures. Based on this medical insurance policy, the hospital will receive a proportional expenditures result in an operation or medical treatment, while the patient only needs to pay the residuary. Medical subsidy aims to reduce expenditures of the patient, so it also has positive impact on the willingness of the patient to go to a hospital when he or (...truncated)


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Chan Wang, Pu-yan Nie. Effects of asymmetric medical insurance subsidy on hospitals competition under non-price regulation, International Journal for Equity in Health, 2016, pp. 184, 15, DOI: 10.1186/s12939-016-0468-8