Competition and efficiency in repeated procurements: Lessons from the Finnish rehabilitation markets

Inefficient practices and lack of competition are common problems in public procurements. In this study, I examine the effects of a procurement practice reform in the Finnish rehabilitation markets where providers are acquired in a repeated manner through competitive bidding scoring auctions. Until recently, the largest public procurer did not use any systematic criteria for accepting providers, and only a few providers did not receive a contract. After the reform, providers were systematically accepted based on their capacity and the local demand. I analyze the effects of the reform on prices in physio, speech and occupational therapy services with data that covers five subsequent procurements. I use the pre-reform differences in local competition within the markets in a difference-in-differences setting. The descriptive evidence shows that the reform slowed down the rapid increase of prices in all three services. The regression analysis indicates that effects are strongest in the most competitive local physiotherapy markets. This suggests that increasing entry and competition in the less competitive services and local markets would benefit the public procurer.