Competition, market structure, and incentives in the health care industry

The first paper in this dissertation analyzes the incentives for cost reduction that different payment policies provide to profit-maximizing health care providers. Ching-to Albert Ma ("Health Care Payment Systems: Cost and Quality Incentives," Journal of Economics and Management Strategy, 3 (1), 1994, 93-112) proposes a reimbursement mechanism that seeks to induce the ideal level of cost reduction by using a combination of cost reimbursement and prospective payment in a model where higher effort on the part of the health care provider reduces treatment costs. This paper shows that a health care provider facing a mechanism of this type generally will not provide the ideal level of cost reduction. However, such a mechanism is optimal when the payer has both efficiency and distributional concerns.;The second paper models competition between health maintenance organizations (HMOs) and between indemnity providers of health care. When indemnity insurers have to rely on independent hospitals' reports of patient needs, they do not provide enrollees with full insurance. Instead, they employ copayments to ration the quality of treatment that patients obtain. HMOs that do not allow their enrollees freedom of provider choice can better enforce desired quality levels without having to resort to copayments. HMOs insure risk-averse consumers fully. HMOs may also provide higher quality treatment to their patients than do hospitals serving patients with indemnity insurance.;The third paper uses data from Florida hospitals to analyze the impact that competition and managed care have on hospital prices. I find that overall hospital prices increase as markets become more competitive. However, prices at hospitals that draw a large fraction of their patients from managed care organizations either decrease or are not significantly affected as markets become more competitive. Prices at for-profit hospitals decrease while those at nonprofit hospitals increase with competition. The final chapter concludes the dissertation.