Patient mobility and health care quality when regions and patients differ in income

Abstract

This paper studies the effects of cross-border patient mobility on health care quality and welfare when income varies across and within regions. We use a Salop model with a high, middle and low income region, where, in each region, a policy maker chooses the level of health care quality that maximises welfare subject to costs being financed by general taxation. In equilibrium, regions with higher income offer better quality, implying that the high (low) income region imports (exports) patients and the middle-income region both imports and exports patients. Assuming DRG-pricing, we find that a reduction in mobility costs has generally heterogeneous effects on regional health care quality and welfare, with low and middle income regions being vulnerable to adverse effects of cross-border health care liberalisation. We also show that higher income inequality in a region might have negative spillover effects on quality provision in other regions because of cross-border patient mobility.