Changes required in pricing of health care services

School of Public Policy research paper calls for truly competitive bidding process

CALGARY , Dec. 7 /CNW/ - The School of Public Policy at the University of Calgary has released a research paper entitled, "A Competitive Process for Procuring Health Services: A Review of Principles with an Application to Cataract Services" authored by David Dranove and Leemore Dafny, both of the Kellogg School of Management at Northwestern University and Cory Capps of Bates White. The paper uses the outsourcing of cataract surgery as its case study, and makes recommendations to fundamentally change the way Alberta Health Services determines the price by which it pays for privately delivered health care services.

Under the current system, private medical providers submit bids to Alberta Health Services (AHS), and then an evaluation committee takes all bids and averages or blends them to determine the price that providers will be paid for a given procedure.

According to Dranove and his co-authors, the current system is flawed insofar as "this process does nothing to encourage either truthful bidding or low bidding. There is an implied risk that AHS may allocate more procedures to the lowest bidder but in fact this has never occurred. The process may even encourage providers to inflate their bids so as to boost the average price."

Dranove argues that the current system be replaced with true competitive bidding, with safeguards built in to ensure quality. This reform would provide significant benefits according to the author, including a reduction of waiting lists, minimizing total costs to the health care system, allocating the most procedures to the most efficient providers of services, and removing the incentive to create demand.

The papers' conclusions will be discussed today with a panel of experts and stakeholders from government, medicine, and the School of Public Policy.

The paper is available at www.policyschool.ca (click link to publications).

For further information: or to schedule an interview with the author contact: Morten Paulsen, [phone], [email protected]