Two-tier charging strategies in public hospitals : implications for intra-hospital resource allocation and equity of access to hospital services
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McPake, B., Hanson, K. & Adam, C. (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, vol. 26, , pp. 447-462,
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.