ABSTRACTS

The preferred-provider market

When a third party payer (be it a private insurer or a national health service) contracts with health providers, the third party payer (3PP) may make special agreements with a subset of "preferred providers". The consumers affiliated to the 3PP then have cheaper (or even free) access to these preferred providers than to other providers. This chapter analyzes how providers compete to become preferred providers.

Contractual design and PPPs for hospitals: lessons for the Portuguese model.

Recently the Portuguese Government announced the launching of public-private partnerships (PPPs)  to build hospitals with the distinctive feature that infrastructure construction and clinical activities management will be awarded to separate private parties. Also, one of the parties will be in charge of providing soft facilities. We explore alternative configurations of contracts and assess whether the equilibrium allocations attain the first-best solution.

On insurance and the cost-sharing of pharmaceutical R&D.

Ramsey pricing has been proposed in the pharmaceutical industry as a principle to price discriminate among markets while allowing to recover the (fixed) R&D cost. However, such analyses neglect the presence of insurance or the fund raising costs for most of drug reimbursement. By incorporating these new elements, we aim at  providing some building blocks towards an economic theory incorporating Ramsey pricing and insurance coverage. We show how coinsurance affects the optimal prices to pay for the R&D investment. We also show that under certain conditions, there is no strategic incentive by governments to set coinsurance rates in order to shift the financial burden of R&D. This will have important implications to the application of Ramsey pricing principles to pharmaceutical products across countries.

Models of Negotiation and Bargaining in Health Care.

Negotiation over contractual terms, including prices as one major element, becomes a relevant issue in the analysis of performance of health care systems. Both empirical and theoretical analysis have been produced, and are reviewed below. This chapter does not aim to be an encyclopedic view of the existing literature on bargaining in health care. Instead, we try to motivate the reader for the new developments associated with explicit bargaining between third-party payers and providers of health care (a relation which is, in itself, only one in many that exist in the health care sector).

Bargaining and Idle Public Sector Capacity in Health Care.

A feature present in countries with a National Health Service is the co-existence of a public and a private sector. Often, the public payer contracts with private providers while holding idle capacity. This is often seen as inefficiency from the management of public facilities. We present here a different rationale for the existence of such idle capacity: the public sector may opt to have idle capacity as a way to gain bargaining power vis-\`a-vis the private provider, under the assumption of a more efficient private than the public sector.

  Transport technologies and Location.

We present a simple model of spatial competition to analyze the impact of a structural change in transaction (transportation) costs on the location of firms. The distinctive feature of the model is the existence of two markets which are non-connected. This means that a firm willing to sell in the other market must take into account a fixed fee in addition to the usual quadratic transport costs. Two different formulations for quadratic costs are explored, yielding different results for location analysis. In particular, the principle of maximum differentiation may not hold depending on the nature of transport costs.

Preventive health care and payment systems to providers.

Prevention has been a main issue of recent policy orientations in health care. This renews the interest on how different organizational designs and the definition of payment schemes to providers may affect the incentives to provide preventive health care.

We focus on the externality resulting from referral decisions from primary to acute care providers. This makes our analysis complementary to most works in the literature allowing to address in a more direct way the issue of preventive health care. The analysis is performed through a series of examples combining different payment schemes at the primary care center and hospital. When hospitals are reimbursed according to costs, prevention efforts are unlikely to occur. However, under a capitation payment for the primary care center and prospective budget for the hospital, prevention effortsincrease when shifting from an independent to an integrated management. Also, from a normative standpoint,  optimal payment schemes are simpler under joint management.

Negotiation Advantages of Professional Associations in Health Care.

In several instances, third-party payers negotiate prices of health care services with providers. We show that a third-party payer may prefer to deal with a professional association than with the sub-set constituted by the more efficient providers, and then apply the same price to all providers. The reason for this is the increase in the bargaining position of providers. The more efficient providers are also the ones with higher profits in the event of negotiation failure. This allows them to extract a higher surplus from the third-party payer.

Selecting Health Care Providers: "Any Willing Provider" vs. Negotiation.

We address the question of how a third-party payer (e.g. an insurer) decides what providers to contract with. Two different mechanisms are studied and their properties compared. A first mechanism consists of the so-called “any willing provider” where the third-party payer announces a contract and every provider freely decides to sign it or not. The second mechanism is a bargaining procedure with both providers set up by the third-party payer. The main finding is that the decision of the third-party payer depends on the surplus to be shared. When it is relatively high the third-party payer prefers the any willing provider system. When, on the contrary,
the surplus is relatively low, the third-party payer will select a negotiated solution.

Public and Private Provision of Health Care.

One of the mechanisms that is implemented in the cost containment wave in the health care sectors in western countries is the definition, by the third-party payer, of a set of preferred providers. The insured patients have different access rules to such providers when ill. The  rules specify the co-payments patients must pay when using an out-of-plan care provider. This paper studies the competitive process among providers in terms of both prices and qualities. Competition is influenced by the status of providers as in-plan or out-of-plan care providers. Also, there is a moral hazard of provider choice related to the trade-off between freedom to choose and the need to hold down costs.

It is possible to achieve the first-best allocation by an appropriate definition of the reimbursement scheme when decisions on prices and qualities are taken simultaneously (that we relate to primary health care sectors). In contrast, some type of regulation is needed to achieve the optimal solution when decisions are sequential (specialized health care sector). We also derive normative conclusions on how price controls should be implemented in some European Union Member States.

On the Effects of Antidumping Legislation.

We show that the nature and extent of trade is significantly affected by the pricing policy that firms are allowed to employ. A switch from discriminatory to non-discriminatory pricing (e.g. strict antidumping laws) lead to a switch from two-way trade to one-way trade. It is far from necessarily being the case that the consumers will be favoured by such policy switch. It is also the case that distribution of gains is significantly affected by relative country size.

The Role of Information in Licensing Contract Design.

This paper analyzes the contract terms of licensing agreements, based on a sample of contracts of transmission of technology between Spanish and foreign firms. It also presents a model that is in accordance with some stylized facts. We will focus our attention on the elements that explain the contract terms. In particular we analyze the consequences of the inclusion of know-how in the license agreement on the contract terms.

Bargaining at Variable Rhythms.

This note presents a modification of Rubinstein's model in which players can choose whether to be fast or slow in responding to their opponents's proposals. We characterize the effects of such choice on the outcome of the bargaining and give predictions on what rhythm will players choose in equilibrium.

Impacto del Mercado Unico sobre los Sectores Industriales Españoles.

Este artículo analiza los efectos del proceso de incorporación de España a la CEE y de la futura creación del Mercado Unico sobre la Industria Española. Algunos sectores industriales han sufrido en el proceso, otros han superado mejor la prueba. En cualquier caso, la inversión directa y las adquisiciones de empresas con fondos procedentes del extrerior han atenuado los costes de la integración. Los efectos más negativos más importantes ya han tenido lugar y no se producirán con tanta intensidad durante la construcción del Mercado Unico

Empresas Multiproducto, Competencia en Precios y Localización.

El análisis de empresas multiproducto en modelos espaciales à la Hotelling donde los costes de transporte se definen como funciones cuadráticas de la distancia, nos muestra que las empresas no tienen incentivos para proliferar sus productos. El objetivo de esta nota es examinar la robustez de este resultado introduciendo diferentes escenarios, tanto en términos de la especificación del espacio (unidimensional), como de la función de costes de transporte. Demostramos que tal resultado es robusto a la definición del espacio pero no lo es bajo formas más generales de los costes de transporte.

Economía de la Diferenciación de Producto: Una guía selectiva de la Literatura.

Price Competition in Markets for Dichotomous Substitutes.

The paper deals with price rivalry between two sellers of a differentiated good. Each firm occupies one of the two possible locations in the characteristics space considered. This resembles real situations like the choice between dichotomous substitutes, or examples coming from spatial economics. The consumers' population is partitioned in two groups according to preferences and the population density is constituted by two atoms. Transportation costs vary across consumers. Nevertheless, the resulting firms' demand functions share the continuity property. At a non-cooperative equilibrium the prices of the two goods differ and some consumers who rank highest the more popular brand find it convenient to purchase the less expensive alternative. Higher one-firm concentration ratios are found to be consistent with lower equilibrium prices. This last feature is verified comparing the non-cooperative outcomes stemming from different original population densities.

On Brand Proliferation with Vertical Differentiation.

It is known that under horizontal differentiation whenever firms decide sequentially upon locations and prices, they give up the possibility of proliferation.We propose a spatial model of vertical differentiation to check the robustness of such an outcome to the specification of product differentiation.

Can Price Competition Dominate Market Segmentation?.

This note analyses duopoly competition in a two stage (location-price) game, while allowing each firm to establish a couple of outlets. Both the circle and the line model of spatial competition are considered. Our main result is clear-cut: in equilibrium neither firm will take up the opportunity of opening two stores. This is a warning that market segmentation, i.e. competition for multiple outlets, might not be attractive at all, because it entails more intense price competition.