Provision of Healthcare: The Road towards a Better System

This thesis analyses optimal design of healthcare payment systems, in a broad sense, among the health authority (HA), public hospitals, and medical consultants. The second chapter focuses on private practice within public hospitals. It characterises the optimal contract between the HA and consultants. It shows that private practice is social beneficial because it reduces public expenditure and motivates consultants to treat more patients. However, it also stipulates that the private fee must be capped to protect the private patients’ consumer surplus. The second chapter also identifies settings in which senior consultants should be prioritised when allocating private practices and the settings in which they should not be. The third chapter explores the effectiveness of a voluntary healthcare reform that was implemented in Ireland in 2008 using both, a theoretical model and empirical evidence. It shows that the voluntary regulation led to an unexpected adverse outcome whereby fewer public patients were attended to. The new optional contract is shown to disincentivise some consultants to treat more patients. Finally, the fourth chapter of this thesis evaluates payment systems used to compensate public hospitals, paying particular attention to the investment in medical devices undertaken by a rural hospital. Such investments contribute to the rural patients’ well-being and generates economic and perceived psycho-social externalities to the rural community. Comparing the fee-for-service payment system to the more recently used Diagnosis-related-groups payment system, the last chapter identifies the circumstances under which each of these would lead to investments closer to the level maximising the total surplus.