Welfare Analysis of Functional Division among Medical Facilities

Abstract

Recently, in order to improve the efficiency, functional division among medical facilities has become very common in medical services of Japan. So far, however, not only this phenomenon has escaped the attention economists’ scrutiny, but also its welfare implication has not been fully discussed yet. This paper addressed these two points.
First it analyzes the functional division among medical facilities using the framework classical Ricardian specialization model. Secondly, it analyzes the impact of functional division on social welfare using Rawlsian criterion. Thirdly, we examine the social optimal medical service delivery.
Our main results are as follows: (a) To achieve functional division appropriately, gaps in publicly regulated prices among health services must be within an allowable range; (b) If there are sufficient gaps in labor resources among medical facilities, functional division cannot realize socially optimal equilibrium, even if appropriately implemented; (c) To achieve socially optimal equilibrium, the mixed delivery system—characterized by collaboration between private medical facilities aiming to maximize their own profits and public medical facilities acting with public interests in mind—is essential.