Competition, capitation and coding: do public primary care providers respond to increased competition?

The case for competition in health-care markets rests on economic models in which providers seek to maximize profits. However, little is known regarding how public health-care providers, who might not have a profit motive, react to increased competition from private providers. This study considers the heterogeneous effects of a primary health-care reform in a Swedish region that considerably loosened entry restrictions and increased patients' freedom of choice, thus enabling increased competition. Our difference-in-differences analysis contrasts local markets that were affected by both entry and choice with local monopoly markets, which were unaffected by the reforms. Using detailed administrative data on all visits to public health centers in 2008-2011, we find that providers in markets with increasing competition registered more diagnoses in an administrative database, thus increasing their reimbursement per patient. Although the economic significance of the effect is small, the result suggests that public providers are indeed sensitive to competition.