Low risk, high reward? Repeated competitive biddings with multiple winners in health care

We study physiotherapy providers' prices in repeated competitive biddings where multiple providers are accepted in geographical districts. Historically, only very few districts have rejected any providers. We show that this practice increased prices and analyze the effects the risk of rejection has on prices. Our data are derived from three subsequent competitive biddings. The results show that rejecting at least one provider decreased prices by more than 5% in the next procurement round. The results also indicate that providers have learned to calculate their optimal bids, which has also increased prices. Further, we perform counterfactual policy analysis of a capacity-rule of acceptance. The analysis shows that implementing a systematic acceptance rule results in a trade-off between direct cost savings and service continuity at patients' usual providers.