Contracting models for pricing and capacity decisions in healthcare systems

Many healthcare systems contain public and private providers with different characteristics. Generally, private hospitals provide better service with shorter waiting times. However, high prices of private hospitals cause most patients to go to public ones and this leads to overcrowding and dissatisfaction of patients at public hospitals. We propose new pricing policies and contract mechanisms that can be applied between the government and private hospitals in order to balance this system and provide higher utility for society. A multi-objective problem between two decision makers is analyzed and analytical models are proposed. In these models, the government first suggests different contract mechanisms to the private hospitals and then these hospitals decide on their capacities if they accept the contracts. Best contract mechanism and optimal contract parameters are investigated in order to maximize the total social utility. Detailed numerical results are presented in order to compare different contract mechanisms. It is shown that the proposed mechanisms can improve the system performance significantly and can lead to better healthcare systems. The effects of the parameters on the system results are also analyzed through numerical experiments.