Purchasing Medical Devices: The Role of Buyer Competence and Discretion

Abstract

This paper investigates the price variability of standardized medical devices purchased by Italian Public Buyers (PBs). A semiparametric approach is used to recover the marginal cost of each device. Average prices vary substantially between PBs; we show that most of the difference between the purchase prices and estimated costs is associated with a PB fixed effect, which, in turn, is related to the institutional characteristics and size of the PB. Repeating the main estimation using device fixed effects yields similar results. Finally, an exogenous policy change, i.e. the termination of the mandatory reference price regime, is used to assess how discretion affects medical device procurement given the skills of each PB. Our results show that less PB discretion — i.e. when mandatory reference prices apply – determines efficiency gains and losses for low- and high-skilled PBs, respectively.