Potential effect of internal markets on hospitals' waiting time

The paper examines by means of a queuing model how an internal market can contribute to a cost-effective allocation of resources in a hospital sector with waiting lists. Cost-effectiveness is defined as the allocation of resources that minimises patients' waiting time. The cost-effective allocation of patients between hospitals implies specialisation between hospitals with moderate travel costs, even when hospitals are equally efficient. It is shown that, in theory, there are relative prices that encourage the implementation of a cost-effective allocation of resources. Specific problems of market implementation may occur in medical care. There is little experience with managed markets for hospital treatment. The potential benefit in economic efficiency calls for pilot projects to gain experience in this important area.