Pedro Pita Barros

THE BLACK BOX OF HEALTH CARE EXPENDITURE GROWTH DETERMINANTS

In this paper, the determinants of growth of aggregate health expenditures are investigated. The study departs from previous literature in that it looks at differences across countries in growth (and not levels) of health care expenditures. Estimation is made for 24 OECD countries. Health system characteristics usually believed to influence health expenditures growth, like population ageing, the type of health system (public reimbursement, public contract or integrate) and existence of gatekeepers, are found to be non-significant. Nevertheless, there is evidence that health expenditures experienced a clear slower growth in the last decade. The explanation for this slowdown could not be found in the proposed model and should stimulate further research.

Merger policy in open economies

Abstract We extend Farrell and Shapiros (1990) analysis of horizontal mergers to the case of an open economy. We show how the rules for approving a merger ought to be adapted to account for the fact that the regulator is only concerned with domestic welfare, that is, ignores the effect of the merger on foreign firms and consumers. We also explore the consequences of this externality in a model of a ‘single market’ which includes consumers and producers of different countries. In particular, we provide conditions under which a decentralized process of evaluating merger proposals a la Farrell-Shapiro can survive the externality mentioned above.

Universal Service and Entry: The Role of Uniform Pricing and Coverage Constraints

Universal service objectives are pervasive in telecommunications, and have gained new relevance after the introduction of competition in many markets. Despite their policy relevance, little work has been done allowing for a thorough discussion of instruments designed to achieve universal service objectives under competition. We intend to fill this gap, and disaggregate the problem into interacting forms of regulatory intervention such as uniform pricing and coverage constraints. It is shown that these are not competitively neutral and may have far-reaching strategic effects. Under uniform pricing, equilibrium coverage of both incumbent and entrant may be lower than without regulation. These effects depend on which measures are imposed at the same time, thus no single measure can be evaluated in isolation. We also point out that different groups of consumers are affected in different ways, making welfare comparisons difficult.

Multimarket competition in banking, with an example from the Portuguese market

Abstract Banks typically have more than one branch and their activities usually span over several markets. This multilocational nature of banks generates equilibrium price dispersion. The paper proposes a spatial competition model to explain price differences across banks in the deposits market. The model allows to separate two different sources of observed market power: collusion in the industry and product differentiation induced by location in local markets. An application to Portuguese commercial banking is reported as an illustration.

Endogenous mergers and size asymmetry of merger participants

Abstract This note presents a simple model highlighting the basic economic intuition about the relationship between initial market concentration and size asymmetry of merger participants. Merger participants are endogenously determined. The main result shows that a negative relation should be expected.

Health policy reform in tough times: The case of Portugal

The financial rescue plan for the Portuguese economy details a number of adjustments to be made in the National Health Service. We review the changes on user charges. The requirement of the rescue plan on user charges is twofold: structure of user charges and the levels of user charges. Adoption of measures occurred within the timeframe required. The first part, structure of user charges, is already present in the Portuguese NHS and has been for a decade. The crucial decisions are therefore on the level of user charges. Increases in levels of user charges were substantial (roughly doubling their previous levels) although exemptions also expanded considerably the fraction of the population that is not required to pay user charges. The net effect is not clearly predictable.

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 and the indemnity the patient obtains if patronizing an out-of-plan care provider. We propose to study the competitive process among providers in terms of both prices and qualities. Competition is influenced among other factors by the status of providers as in-plan or out-of-plan care providers. Also, we face a moral hazard of provider choice related to the trade-off between freedom to choose and the need to hold down costs. Our main findings are that we can define a reimbursement scheme when decisions on prices and qualities are taken simultaneously (that we relate to primary health care sectors) such that the first-best allocation is achieved. In contrast, some type of regulation is needed to achieve the optimal solution when decisions are sequential (specialized health care sector). We also derive some normative conclusions on the way price controls should be implemented in some European Union Member States. JEL Numbers: I11, I18

Cream-skimming, incentives for efficiency and payment system

Reform proposals of health care systems in several countries have advocated variations of a risk adjustment/capitation system. These proposals face a serious objection: incentives to risk selection are prevalent in the system. By now, considerable literature has been devoted to finding ways of mitigating, if not eliminating, this problem, while at the same time preserving incentives to efficiency. We contribute to this debate presenting a transfer system that, under some circumstances, attains both provider efficiency and no risk selection. The transfer system extends typical linear payment systems. It can be interpreted as a fixed transfer in the beginning of the period plus an ex-post fund at the end of the period. The novelty rests in the way contributions to this fund are defined.

The Simple Economics of Risk-Sharing Agreements between the NHS and the Pharmaceutical Industry

The introduction of new (and expensive) pharmaceutical products is one of the major challenges for health systems. The search for new institutional arrangements is natural. The use of the so-called risk-sharing agreements is one example. Recent discussions have somewhat neglected the economic fundamentals underlying risk-sharing agreements. We argue here that risk-sharing agreements, although attractive due to the principle of paying by results, also entail risks. Too many patients may be put under treatment. Prices are likely to be adjusted upward, in anticipation of future risk-sharing agreements between the pharmaceutical company and the third-party payer. An available instrument is a verification cost per patient treated, which allows obtaining the first-best allocation of patients to the new treatment, under the agreement. Overall, the welfare effects of risk-sharing agreements are ambiguous, and caution is urged regarding their use.

Post-entry expansion in banking: The case of Portugal

Abstract The deregulation of the Portuguese banking sector from a system with administratively fixed interest rates and entry controls to a freer market regime has been steady over the last decade. Removal of entry constraints has given rise to strong growth in branches as the result of a post-entry game. Behavior differences between incumbents and entrants are observed. Surprisingly, no response of incumbents to entrants is found. Incumbent banks seem to follow each other in expansion patterns. Entrants by acquisition (privatized banks) were more prone to branch expansion, revealing a strong effect associated with this type of entry.