Outsourcing to Private for-profit Hospitals : Analyses of tendering and learning effects on prices paid to for-profit hospitals, 2003-2011

Abstract

BACKGROUNDS: Since 1999, the activity level for private commercial hospitals was continuously increased when day surgery was integrated as a part of the activity based financing scheme. The government has begun to allow the RHAs to use tendering for purchasing specialized healthcare services in 2002. The aim for this change was to stimulate the competition between private actors and to seek cost-effectiveness by using hard powered regulatory mechanisms, such as; tendering with a selective contract. The outsourcing of day surgeries to private hospitals were stimulated after the Patient rights act of 2001 and the extended ‘free choice of hospital’ in 2004 to include private hospitals that were on the contract with the RHAs, and patients are assigned with individual time limit for necessary treatment. If the time limit is exceeded, the patient has the right to seek care at private specialist or abroad at the expense of the home regional health authority. OBJECTIVES: The main aim of this study is to analyze the price changes in the contract between RHAs and private for-profit hospitals on elective day surgeries over the years 2003-2011, and to discuss the implications of tendering and learning on this price changes. Additionally, the changes with respected to contract sophistications will be investigated. METHODS: The methodological approach to this study is triangulation; quantitative method (multiple regression; Ordinary Least Squares (OLS)) is used together with qualitative methods, which are questionnaires and an interview. The empirical model was applied to measure the extent tendering and learning effect has on the price reduction. Questionnaires were sent to each RHA. An interview was also conducted to supplement the statistical outcome as learning effect on changes in prices, as well as to understand the role of learning on contract sophistication related to design and terms. RESULTS: The tendering with selective contracts is more effective than other budget processes. An estimated reduction in the prices due to the effect of tendering is about 10 to 27% at the private for-profit hospitals, when all other variables are controlled. A learning effect was not strong enough to conclude that it had an actual effect on the prices of day surgeries. Statistically, the result of learning effect is still at borderline significance CONCLUSIONS: ‘performance based partnership’ between RHA and for profit hospitals could be the best for the future direction of government procurement of health services.