Hospital competition in prices and quality: A variational inequality framework

Publication date: Available online 13 October 2017 Source:Operations Research for Health Care Author(s): Anna Nagurney, Karen Li In this paper, we construct a game theory model to capture competition among hospitals for patients for their medical procedures. The utility functions of the hospitals contain a revenue component and a component due to altruism benefit. The hospitals compete in prices charged to paying patients as well as in the quality levels of their procedures. Both prices and quality levels are subject to lower and upper bounds. We state the governing Nash equilibrium conditions and provide the variational inequality formulation. We establish existence of an equilibrium price and quality pattern and also present a Lagrange analysis of the equilibrium solutions. An algorithm is proposed and then applied to numerical examples comprising a case study focusing on four major hospitals in Massachusetts.
Source: Operations Research for Health Care - Category: Hospital Management Source Type: research