Competition and Public Procurements in Health Services
Abstract
This thesis studies competition and public procurements in health services. The thesis consists of four interrelated empirical articles examining competition in the Finnish rehabilitation markets and the efficiency of the repeatedly organized procurements by the country’s largest service purchaser. The setting offers a unique possibility to examine competition in the market in the form of patient choice and competition for the market in the form of public procurements. The aim of the thesis is to analyze the functioning of market competition and the efficiency of the procurements. The articles use individual-level register data on patients and administrative data on service providers collected from the procurements. The results provide information to guide the design of the market competition and procurements in different health and social services.
The first article examines quality competition in the physiotherapy market in the form of patient choice policy. We analyze whether quality influences patients’ choices and how this differs with respect to patients’ experience. Our data and setting enables us to identify three different patient groups: new patients, active switchers and forced switchers. We estimate conditional logit models where patients’ choices are explained by providers’ quality, distance and free capacity. Our results show that all patients prefer high-quality providers within short distances, but forced switchers are the least willing to travel for higher quality. This suggest that forced switchers most likely choose their new provider in limited time, which may lead into
poorer choices in terms of providers’ quality.
The second article examines price competition for the physiotherapy market in the competitive biddings. We show that the procurer used an inefficient procurement practice where nearly all bidders were accepted in the pool of providers. Our empirical design utilizes differences in regional rejection rates and providers’ distance to the quality–price acceptance threshold at previous procurements. The results show that rejecting at least one provider in the area decreased providers’ prices in the next procurement round. We also find that providers that were further away from the rejection threshold offered higher prices in the next procurement round. We also show that implementing a capacity-based acceptance rule would have
resulted in large direct fiscal saving but forced many patients to switch their provider.
The third article examines the price effects of the 2018 procurement reform in the physio, speech and occupational therapy markets. The reform made the procurement more efficient, as providers were accepted based on the local demand and providers’ capacity. I exploit the pre-reform variation in market competition in a difference-in-differences setting. The results show that the reform slowed down the increase of prices in all three services. The price effects were strongest in the most competitive local physiotherapy markets, which suggest that the procurements of the two other services could benefit if competition in the underlying markets would increase.
The fourth study examines the advantages and challenges of two commonly used procurement methods in health services: competitive bidding scoring auctions and fixed price procurements. We analyze a fixed price procurement that was piloted in the physiotherapy market in two areas in 2010. We review the literature on both procurement types and provide descriptive analysis from the studied procurements. The results show that efficiently organized procurement provides information about quality and prices of possible providers. Fixed prices may enable service continuity
but it may be difficult for the procurer to determine the appropriate price-level.
The results of the articles highlight the importance of an efficient procurement practice in repeatedly organized procurements where multiple providers receive a contract. The challenge in health services is that patients may be forced to switch their provider because of efficiently organized procurements. A successful procurement also requires a competitive underlying market that produces competitive pressure. A fixed price procurement may be suitable especially when the underlying market is not competitive and the procurer can utilize its monopsony pricing power. Patient choice can be combined with procurements as a tool to promote quality competition in the health care markets
Author
Visa Pitkänen
Additional Information
- Peer-Reviewed: yes.
- Open Access: yes.
- Cite as: Pitkänen, V. (2023). Competition and Public Procurements in Health Services. Trepo. https://urn.fi/URN:ISBN:978-952-03-2822-1
