Inter-regional Competition and Quality in Public Hospital Care

This paper analyzes the effect of capitation payment and patient choice on waiting time and the comprehensive quality of hospital care. The study assumes that two local public hospitals are located in two cities with different population sizes and compete with each other. We find that the comprehensive quality of hospital care as well as waiting time of both hospitals improve with an increase in capitation payment. However, we also find that the extent of these improvements differs according to the population size of the cities where the hospitals are located. Under the realistic assumptions that hospitals involve significant labor-intensive work, we find the improvements in comprehensive quality and waiting time in the hospital located in the small city to be greater than those in the hospital located in the large city. The result implies that regional disparity in the quality of hospital care decreases with an increase in capitation payment.