Consumer choice and public-private providers: The role of perceived prices

Governments often encourage health service providers to improve quality of care and reduce prices through competition. The efficacy of competition hinges on the assumption that consumers demand high quality care at low prices for any given health condition. In this paper, we examine this assumption by investigating the role of perceived price and quality on consumer choice for four different health conditions across public and private providers. We use a nationally representative survey in Malaysia to elicit respondents' perception on prices and quality, and their preferred choice of provider. We estimate a mixed logit model and show that consumers value different dimensions of quality depending on the health condition. Furthermore, increasing perceived prices for private providers reduces demand for minor, more frequent health conditions such as flu fever or cough, but increases demand for more complex, severe conditions such as coronary artery bypass graft. These findings provide empirical support for price regulation which differentiates the severity of underlying health conditions.