Health Care Payment Systems: Cost and Quality Incentives

Abstract

This paper compares the cost and quality incentive effects of cost reimbursement and prospective payment systems in the health industry. When a provider cannot refuse patients who require high treatment costs or discriminate patients by qualities, optimally designed prospective payments can implement the efficient quality and cost reduction efforts, but cost reimbursement cannot induce any cost incentive. When the provider can refuse expensive patients, implementation of the first best requires a piecewise linear reimbursement rule that can be interpreted as a mixture of pure prospective payment and pure cost reimbursement, Under appropriate conditions, prospective payment can implement the first best even when the provider can use qualities to discriminate patients.

Public versus private health care in a national health service

“…Hence, the public sector has by assumption served those consumers with the highest willingness to pay for health care. 11 Those not served by the public sector will have 9 McGuire (1986, 1990) have considered how the reimbursement scheme a¤ects the supply of health services, while Ma (1994) and Sharma (1998) have investigated how it a¤ects quality as well as the incentives for reducing costs. For a survey of the literature, see Newhouse (1996) or Ennis (1998).…”

Physicians’ multitasking and incentives: Empirical evidence from a natural experiment

“…Physicians make decisions on both the extensive margin, affecting their time spent at work, and the intensive margin, affecting the number of services provided. What is more, physician services are provided within a multitasking environment (Ma, 1994;Ma and McGuire, 1997) -decisions over the number of patients treated, the time spent seeing patients and the time devoted to teaching and to administrative tasks affect the quantity as well as the quality of health care supplied. Consequently, employers of physician services (in both the private and public sector) must be concerned with the efficient allocation of physician time and effort across different tasks.…”

Financing and funding health care: Optimal policy and political implementability

“…First, provider payment. The papers of Chalkley and Malcomson (1998a;1998b), Ma (1994), and, more recently, Eggleston (2005), and Kaarbøe and Siciliani (2011), show that mixed payment systems will generally be optimal. Whether quality incentives will be high powered or low powered depends on the respective environment.…”