Regulation And The Effectiveness Of The Supply Of Health Services

The reform of Medical Care System bothers a lot of governments of the countries in this world. To ensure the medical care services efficiently and equitably supplied, the governments make great efforts regulating on the delivery system of medical care (and also others). These efforts are mainly two fold: first, to control the prices or total expenditure of medical care; second, to make medical care services equitably available to every consumer. As for the on-going reform in China, do these efforts pay off? Based on the 30 years' reform of Medical Care System in China, this dissertation analysis's the effectiveness and influence of government regulation on the delivery system of medical care. The results contain:First, the price regulation, which aims at controlling medical expenditure, proves to be a failure, since per capita medical expenditure in China is rising quickly over recent years. Our model, using incentive theory, explains how the current price regulation policy affects expenditure controlling through its influence on the efforts of physicians. Under current regulation policies, doctors' skills are underpaid, while the prices of drugs and examinations are allowed to be 15% higher than their costs. Such asymmetric price regulation leads physicians to make less effort than under the second best, and also the effort is distributed on different tasks asymmetrically. This helps the raise of expenditure and causes loss in both patients' welfare and social welfare as a whole.Second, it has been proved that there is always contradiction between market supply of health services and its obligation of "universal service", as long as there exists monopolistic issues in this market. The market failure to provide universal services leads to two results: consumers of lowest incomes out of service, and medical resources converging to medical institutions with higher hierarchy or to areas with higher purchasing power.This dissertation also offered a potential resolution to the problems above. Since health services are private goods (with externality) as well as quasi-public goods, the resolution could be taken in two parts: In the private sector, the focus of regulation should be asymmetric information, which provides physicians incentive and opportunities to induce excessive expenditure. Our analysis suggests that, the market mechanism may induce non-fraudulent physician behavior. From the observation of market data such as prices, market shares and so on, consumers can infer the sellers' incentives. The model shows that market equilibria resulting in non-fraudulent behavior do indeed exist. Hence, private providers could be encouraged in this sector. In the public sector, and also to provide supplement to where the market supply could not cover, the government should take responsibility of providing medical care to the poors and to the less developed areas. The model suggests that public hospitals would be a better choice here.