Impacts of Healthcare Price Controls: Potential Unintended Consequences of Firms´ Responses to Price Policies

This paper is concerned with how healthcare price controls can affect the behaviors of healthcare providers. We develop a model of profit maximization by provider firms and show the range of potential responses by providers and the conditions under which each type of response is the best choice. In particular, we show how completely rational behaviors by providers in response to price controls can lead to consequences never intended by policy makers. These consequences may undermine the intentions with which policies were designed and deployed.