Pricing and openness in contracts for health care services

This paper explores the objective of increased competition and considers whether different types of competition are likely to lead to desirable market outcomes. Potential sources of market failure, and hence inefficiency, are examined. The paper then considers what type and degree of regulation may be necessary if the forces of unrestrained competition cannot be expected to achieve desirable outcomes. A number of different options, ranging from minimal regulation to central pricing schedules, are then discussed. Consideration is given to whether openness in costing and/or pricing is necessary and desirable in both short and long term. The paper raises a number of practical problems which may be faced and suggests ways in which incentives can be created to mimic the characteristics of a competitive market.