Abstract
The purpose of this paper is to investigate the effects of nondistribution-of-profit constraint and payment system for medical services on economic behavior concerning private and public hospitals respectively in Japan.
First, nondistribution-of-profit constraint is one of the major institutional arrangements which prevents private hospitals from seeking profits through the provision of medical services. However, through the economic applications of property rights theory to the residual claims in private hospitals, it is made clear that this regulation does not neutralize the motivation to seek profits by running hospitals. This effect causes a difference in economic incentives between private and public hospitals.
Second, as far as the payment system is concerned, medical services are appraised individually according to the uniform fee schedule regulated by government. This fee-for-service payment system is one of the institutional arrangements to reduce transaction costs which are caused by asymmetric information between patients and doctors. Our theoretical results, however, show that the system is not neutral for selecting inputs to produce medical services and induces private hospitals to take opportunistic behavior for profits.
This paper shows that these regulations cause a difference in economic behavior and, as a result, weaken competitiveness between private and public hospitals. Empirical evidence in the Japanese health care system supports our theoretical results.
