Product Offering and Capacity Constraint in Healthcare: Evidence from Dialysis Industry

Abstract

<p>Healthcare regulators possess the authority to set product prices, thereby influencing the strategic decision-making of service providers in terms of availability and quantity. Within this intricate environment, the consequences of inadequate pricing can be substantial, leading to a reduced va- riety of products, a limited supply of treatments, and ultimately, restricted access to healthcare for patients. This study examines the impact of Medicare payment strategies on the product offerings of dialysis facilities, taking into account their capacity constraints, and assesses the subsequent ef- fects on patient welfare. Our findings indicate that increasing payments for less expensive products leads to a rise in the total supply of treatments and a greater diversity of products, but this is only observed in facilities operating near their capacity limits. Additionally, these facilities are motivated to augment their capacity by opening new affiliated branches in nearby locations. Ultimately, our research shows that patients benefit from the increased availability of treatment options, with 16.5% of patients being able to retain employment post-initiation of dialysis without experiencing negative health consequences.<br></p>