McPake, Barbara and Hanson, Kara and Adam, Christopher (2007) Two-tier charging strategies in public hospitals : implications for intra-hospital resource allocation and equity of access to hospital services. Journal of Health Economics, 26 (3). pp. 447-462. ISSN 01676296
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Official URL: http://dx.doi.org/10.1016/j.jhealeco.2006.10.011
Two-tier charging, the practice of offering separate qualities of service at different prices, is a growing practice in public hospitals internationally. This paper models two-tier charging as a Stackelberg game in which the Ministry of Health leads by setting prices and a representative hospital follows by setting quality levels to maximise surplus in response. Whether or not two-tier charging will secure cross-subsidy from superior to basic service users depends on the own and cross-quality effects of the demand functions for the two services. Under a range of assumptions, the policy will evoke cross-subsidy from basic to superior services.
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