IEOR-DRO Seminar: Nicos Savva (LBS)

September 19, 2017 | 1:10pm - 2:00pm

IEOR-DRO Seminar: Nicos Savva (LBS)

Uris 333
Nicos Savva (London Business School) will present “Yardstick Competition for Service Systems.”
 
Abstract: Yardstick competition is a regulatory scheme for local monopolists (e.g., hospitals), where the monopolist’s reimbursement is linked to her performance relative to other equivalent monopolists. This regulatory scheme is known to work well in providing cost-reduction incentives and serves as the theoretical underpinning behind the hospital prospective reimbursement system used throughout the developed world. This paper uses a game-theoretic queueing model to investigate how yardstick competition performs in service systems (e.g., hospital emergency departments), where, in addition to incentivizing cost reduction, the regulator’s goal is to provide incentives to reduce customers’ waiting times. We first show that the form of cost-based yardstick competition used in practice results in inefficiently long waiting times and may also lead to inefficiently high costs. We then demonstrate how yardstick competition can be appropriately modified to achieve the dual goal of cost and waiting-time reduction. In particular, we show that full efficiency (first-best) can be restored if the regulator makes the providers’ reimbursement contingent on their service rates and is also able to charge a provider-specific “toll” to consumers. If such a toll is not feasible, as may be the case in healthcare, we show that an alternative waiting-time-based version of yardstick competition can significantly improve system efficiency (second-best), and it is also easier to implement, as does not require the regulator to have detailed knowledge of the queueing discipline. We conclude with a detailed numerical analysis that provides insights on the practical implementation of yardstick competition in the healthcare industry.


500 W. 120th St., Mudd 315, New York, NY 10027    212-854-2942                 
©2014 Columbia University