A competitive process for procuring health services

The choice of procurement scheme depends on a variety of factors, such as the presence of competing suppliers, the extent to which productive efficiency varies across providers, the degree of product differentiation, asymmetry of information between buyer and seller, and the importance of a fair and transparent procurement mechanism. [...] INTRODUCTION In Alberta, the body responsible for managing the provision of health care services to residents of the province is Alberta Health Services, which is also tasked with the challenge of ensuring access to high-quality care while keeping to a limited budget. [...] Subsequent procurement then relies on relational contracting, and the buyer and supplier end up negotiating over the terms of the contract and the division of the rents. [...] It Is Difficult to Specify the “Product” with Precision In a typical procurement situation, the purchaser specifies the characteristics of the product, and suppliers compete to sell the specified product. [...] The success of prospective payment clearly depends on the balance among • variation in hospital efficiency; • the ability of hospitals to increase efficiency in response to financial incentives; • whether there are substitutes in the production process not captured by the prospective payment; • whether it is costly to monitor and punish substitution done solely to increase profits; and • the abili