Prompt payment enforcement on framework agreements for public hospitals: evidence from Chile

Abstract

Demand aggregation through Framework Agreements (FAs) has emerged as a promising tool to support the efficient expansion of affordable healthcare in developing countries. However, the effectiveness of FAs in achieving lower costs may be hindered if prompt payment is not enforced. This paper estimates the impacts of a reform implemented in Chile in 2014, which introduced a prompt payment enforcement procedure in the FAs that supplied public hospitals. Under this reform, firms were allowed to suspend dispatches until overdue bills were paid. The results from a difference-in-differences estimation indicate that hospitals with greater exposure to the reform, measured by their larger share of late bill payments, reduced their payment delays after 2013 compared with less-exposed hospitals, without compromising health-care quality. The resulting decrease in the average financial cost of FAs led to lower prices, highlighting the importance of prompt payment enforcement for realising savings through FAs.