The regional organization of hospital care in Italy: The effects of asymmetry of information and soft budget constraint rules

In Italy, as in many other western countries, a substantial proportion of healthcare is financed by the public sector. The health care system has been widely reformed and a separation between purchasing and delivering the service has been enforced to mimic the structure of a competitive market in order to improve efficiency. The organization of the internal market can, however, vary among Regions. The aim of this paper is to assess the relative merits of the different forms of organization for secondary care in the context of the Italian health system in a context of information asymmetry. We show that in this context both private and public hospitals can pursue objectives that are not compatible with cost minimization. In this environment the role of the purchaser and the Region is fundamental: unless they enforce hard budget constraint rules, the system might end up being a source of deficit problems which will ultimately undermine the reform and its long-run sustainability.