Additional public procurements in health services : lessons from Finnish physiotherapy markets

Private providers are often acquired through public procurements to provide publicly financed health services. The number of contracted providers and their capacity often turns out to be deficient during the contract period. Typically, the purchasers then organize additional procurements or negotiate directly with available uncontracted providers to acquire more capacity. In this study, we examine an unusual additional public procurement in Finnish physiotherapy markets, in which incumbent providers with an existing contract were also eligible to participate. In practice, these contracted providers did not bear any risk when they submitted their bids in the additional procurement. We compare contracted and uncontracted providers’ prices to free market prices using a difference-in-differences approach. The results show that contracted providers increased their prices on average by 9%, while the originally uncontracted providers decreased their prices by 8% compared to the development of free market prices. Although this inefficient procurement led to a waste of public funds, a simple back-of-the-envelope calculation indicates that additional procurement can still be a more efficient way to increase capacity than directly contracting providers that were not contracted in the initial procurement.