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The European Journal of Health Economics
Published in: The European Journal of Health Economics 1/2017

01-01-2017 | Original Paper

Competition and quality in a physiotherapy market with fixed prices

Authors: Piia Pekola, Ismo Linnosmaa, Hennamari Mikkola

Published in: The European Journal of Health Economics | Issue 1/2017

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Abstract

Our study focuses on competition and quality in physiotherapy organized and regulated by the Social Insurance Institution of Finland (Kela). We first derive a hypothesis with a theoretical model and then perform empirical analyses of the data. Within the physiotherapy market, prices are regulated by Kela, and after registration eligible firms are accepted to join a pool of firms from which patients choose service providers based on their individual preferences. By using 2SLS estimation techniques, we analyzed the relationship among quality, competition and regulated price. According to the results, competition has a statistically significant (yet weak) negative effect (p = 0.019) on quality. The outcome for quality is likely caused by imperfect information. It seems that Kela has provided too little information for patients about the quality of the service.
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Footnotes
1
Approximately 120 firms provide services with service vouchers and 1200 after participating in competitive bidding.
 
2
Approximately 1200 persons receive physiotherapy with service vouchers.
 
3
Registration was not limited, and thus all physiotherapists fulfilling the minimum criteria were able to receive a contract with Kela. The patients are not divided equally among service providers because of patient choice. Rather, firms need to compete against each other for volume. Firms were able to freely set their yearly patient capacity, but the number of treated patients depends on, e.g., competition, the number of disabled individuals in a municipality and patients’ preferences.
 
4
The patient group of this study has a relatively short history of freedom of choice but they most likely have the required cognitive skills to choose providers. This forms the basis of our empirical and theoretical thinking. This starting point does not however imply that patients receiving physiotherapy are well informed about the quality of the service.
 
5
The two pilot insurance districts included 31 municipalities altogether and Kela had a total of 118 service providers in 26 municipalities. Our data include the quality factors of 95 firms from 24 municipalities.
 
6
This questionnaire was conducted because during registration Kela only assessed minimum quality criteria, and the excess quality (which is the dependent variable of this study) was not scored. The firms’ responses to the questionnaire were as follows: 1/2013 = 27 responses, 2/2013 = 12 responses, 3/2013 = 5 responses, 4/2013 = 4 responses, 11/2013 = 14 responses and 4/2014 = 33 firms were interviewed by phone.
 
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Metadata
Title
Competition and quality in a physiotherapy market with fixed prices
Authors
Piia Pekola
Ismo Linnosmaa
Hennamari Mikkola
Publication date
01-01-2017
Publisher
Springer Berlin Heidelberg
Published in
The European Journal of Health Economics / Issue 1/2017
Print ISSN: 1618-7598
Electronic ISSN: 1618-7601
DOI
https://doi.org/10.1007/s10198-016-0792-3

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