Do the hospitals collude or compete under hospital global budget system: evidence from Taiwan

Presenter: Jui-fen Rachel Lu, Chang Gung University

Abstract

Taiwan implemented a Health Insurance (NHI) program in 1995. Despite NHI’s impressive achievement in assuring access to care for and providing financial risk protection to its 23 million citizens, fast growing expenditures which outpace the premium income has remained a burning concern since 1998. To cope with financial insolvency, Bureau of NHI has moved to set up separate global budgets for dental services in 1998, Chinese medicine in 2000, office visit delivered by clinics (primary care) in 2001 and the last but also the most controversial, hospital outpatient and inpatient services in 2002, respectively.

Following Japanese legacy, the hospitals in Taiwan operate large-scale outpatient departments, hence the hospitals are not only delivering inpatient services but also are key providers of outpatient services. The hospital market in Taiwan was composed of 547 hospitals in 2006, declined from 835 hospitals in 1986; nonetheless, the total number of beds has increased by 85.6% (from 70,662 to 131,152 beds) in 20 years. In other words, the hospital market is predominately prevailed by hospitals with large scale. Being a significant player in the health care delivery system, the hospital sector alone took up approximately two-thirds of NHI’s total budget, of which roughly over forty percent is paid to medical centers. Given its significant share of the NHI budget, the hospital global budget becomes the focal point of the cost containment measures adopted by BNHI.

The design of global budget system is to exploit the incentive structure inherent with which one hospital maximizes its profits by taking into account the move made by its peer group. The providers in the same BNHI regional office area are involved in market competition for resources. However, they may also collude (perhaps led by an opinion leader hospital) to ration the service volume and get better point value (unit price under global budget).

In this study, we intend to first provide an overview of the hospital global budget system in Taiwan and present the empirical evidence in assessing the incentive structure and market competition under hospital global budget.

The data used was compiled from BNHI’s hospital global budget claim file, and a weighted least squares and panel fixed-effect estimation models were empirically employed respectively to address the research questions.

The preliminary results from the regional analysis show that regions with larger supply of beds, less number of hospitals (which jointly implies a higher concentration of large-scale hospitals), smaller regional population size and elderly population proportion, tend to result in higher point value. Further examinations on the individual hospital level analysis, we found that the higher the point value in the prior two quarters, the higher the OPD visit volume the hospital would produce, however, no effect was observed in hospital admissions. In addition, hospitals located in a more competitive market area were more likely to reduce its service output level, presumably, as a result of tigher control exercised by the regional office. The evidence seems to suggest that hospitals are more likely to collude to maximize its potential profits. The study results will facilitate a better understanding of the global budget system and provide valuable policy reference for further reforming the system.