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 its performance relative to other equivalent monopolists. This regulatory scheme is known to work well in providing cost-reduction incentives and offers the theoretical underpinning behind the hospital prospective reimbursement system used throughout the developed world. This paper investigates 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 customer waiting times. We show that i) the form of yardstick competition used in practice results in inefficiently long waiting times; ii) yardstick competition can be appropriately modified to achieve the dual goal of cost and waiting-time reduction, and present several extensions that help guide on how it could be used in practice.

Bio

Tolga Tezcan is an Associate Professor of Management Science and Operations at London Business School. He was a faculty member at Simon School of Business in University of Rochester between 2010 and 2014 and at University of Illinois at Urbana-Champaign between 2006 and 2010. He holds a PhD in Industrial and Systems Engineering and a MS in Math from Georgia Tech, a MS is Industrial and Systems Engineering from Colorado State-Pueblo and a BS in Industrial Engineering from Bilkent University, Turkey. Tolga's recent research focuses on health care policy and its impact on hospital operations. He has also worked on robust management of service systems, such as customer service centres and healthcare systems, under uncertainty. His research has appeared in leading journals such as Management Science, Operations Research, M&SOM, and Annals of Applied Probability. He has received the Career Award from the National Science Foundation in 2010.

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