The Impact of Reimbursement Policy on Social Welfare, Revisit Rate, and Waiting Time in a Public Healthcare System: Fee-for-Service Versus Bundled Payment

Guo, Pengfei; Tang, Christopher S.; Wang, Yulan; Zhao, Ming

doi:10.1287/msom.2017.0690

Cited by 112 publications

(59 citation statements)

References 46 publications

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“…Hence, in our model the payer internalizes both its own costs and benefits, as well as those of the patients. This modeling choice for the payer's objective is consistent with the literature (Barros 2011, Andritsos and Tang 2018, Mahjoub et al 2018, Guo et al 2019. We model the payer's objective using the patient expected payoff rather than the cumulative patient welfare for three reasons.…”

Section: Modelmentioning

confidence: 71%

Outcome-Based Pricing for New Pharmaceuticals via Rebates

Adida

2021

Management Science

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The price of new brand-name prescription drugs has been rising fast in the United States. For example, the Amgen cholesterol drug Repatha had an initial list price of $14,523 per year. Patients, even with insurance coverage, must pay out of pocket a significant portion of this price. The treatment might not be successful, and this possibility reduces risk-sensitive patients’ incentives to purchase the drug. The high price together with the chance of negative treatment outcomes may lead payers to deny coverage for the drug. Outcome-based pricing has been proposed as a way to reallocate the risks and improve both payer resource allocation and patient access to drugs. According to an outcome-based rebate contract between Amgen and Harvard Pilgrim Healthcare, if a patient on Repatha suffers a heart attack or a stroke, both patient and insurer are refunded the cost of the drug. We use a stylized model to analyze the effect of outcome-based pricing via rebates. Our model captures the interaction between heterogenous, price-sensitive, risk-sensitive patients who decide whether to purchase the drug; a payer deciding whether to provide coverage for the drug; and a price-setting pharmaceutical firm seeking to maximize expected profits. We find that, in many cases, a pharmaceutical firm and payer cannot simultaneously benefit from outcome-based pricing, and who will benefit is determined by the probability of treatment success. Outcome-based pricing thus appears unlikely to solve the issues of high drug prices and high payer expenditures. However, supplementing outcome-based pricing with a transfer payment from firm to payer can make payer and firm (but not necessarily the patients) better off than under uniform pricing when the drug has a low chance of success. This paper was accepted by Stefan Scholtes, healthcare management.

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Section: Modelmentioning

confidence: 71%

Outcome-Based Pricing for New Pharmaceuticals via Rebates

Adida

2021

Management Science

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“…Andritsos and Tang (2018) compares fee-for-service and bundled payment schemes in a model with readmissions. Guo et al (2019) extends this analysis by modeling the capacity of hospitals and its impact on waiting time of patients explicitly. Adida and Bravo (2019) studies reimbursement contracts between a managing organization, which provides basic care, and an external provider, which provides advanced care and which is reimbursed by the former.…”

Section: Literature Reviewmentioning

confidence: 98%

“…Remark 6. The model we use to capture the impact of delays to access care is similar to that in Guo et al (2019) except they assume that patients are homogeneous in their treatment utilities, hence Θ assigns probability 1 to a single point. Our results can be generalized to this case easily.…”

Section: Treatment Model When Capacity Is Limitedmentioning

confidence: 99%

Hospital Readmissions Reduction Program Does Not Provide the Right Incentives: Issues and Remedies

2018

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The Hospital Readmissions Reduction Program (HRRP) reduces Medicare payments to hospitals with higher-than-expected readmission rates where the expected readmission rate for each hospital is determined based on the readmission levels at other hospitals. Although similar relative-performance-based schemes are shown to lead to socially optimal outcomes in other settings (e.g., cost cutting efforts), HRRP differs from these schemes in three respects: (i) deviation from the targets are adjusted using a multiplier; (ii) the total financial penalty for a hospital with higher-than-expected readmission rate is capped; and (iii) hospitals with lower-than-expected readmission rates do not receive bonus payments. We study three regulatory schemes derived from HRRP to determine the impact of each feature, and use a principal-agent model to show that: (i) HRRP over-penalizes hospitals with excess readmissions because of the multiplier and its effect can be substantial; (ii) having a penalty cap can curtail the effect of financial incentives and result in a no-equilibrium outcome when the cap is too low; and (iii) not allowing bonus payments leads to many alternative symmetric equilibria, including one where hospitals exert no effort to reduce readmissions. These results show that HRRP does not provide the right incentives for hospitals to reduce readmissions. Next we show that a bundled payment type reimbursement method, which reimburses hospitals once for each episode of care (including readmissions), leads to socially optimal cost and readmissions reduction efforts. Finally we show that, when delays to accessing care are inevitable, the reimbursement schemes need to provide additional incentives for hospitals to invest sufficiently in capacity.

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“…In their study within a public healthcare system, Guo et al (2019) examine the impact of the reimbursement policy on social welfare, the revisit rate, and wait times. They show that when the patient pool is large, a bundled payment scheme dominates an FFS scheme in terms of higher social welfare and a lower revisit rate, but the FFS scheme prevails in terms of a shorter wait time.…”

Section: Pooling Vs Focused Operationsmentioning

confidence: 99%

OM Forum—Supply Chain Thinking in Healthcare: Lessons and Outlooks

Betcheva

Erhun

Jiang

2021

M&SOM

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Problem definition: The lessons learned over decades of supply chain management provide an opportunity for stakeholders in complex systems, such as healthcare, to understand, evaluate, and improve their complicated and often inefficient ecosystems. Academic/practical relevance: The complexity in managing healthcare supply chains offers opportunities for important and impactful research avenues in key supply chain management areas such as coordination and integration (e.g., new care models), mass customization (e.g., the rise in precision medicine), and incentives (e.g., emerging reimbursement schemes), which might, in turn, provide insights relevant to traditional supply chains. We also put forward new perspectives for practice and possible research directions for the supply chain management community. Methodology: We provide a primer on supply chain thinking in healthcare, with a focus on healthcare delivery, by following a framework that is customer focused, systems based, and strategically orientated and that simultaneously considers clinical, operational, and financial dimensions. Our goal is to offer an understanding of how concepts and strategies in supply chain management can be applied and tailored to healthcare by considering the sector’s unique challenges and opportunities. Results: After identifying key healthcare stakeholders and their interactions, we discuss the main challenges facing healthcare services from a supply chain perspective and provide examples of how various supply chain strategies are being and can be used in healthcare. Managerial implications: By using supply chain thinking, healthcare organizations can decrease costs and improve the quality of care by uncovering, quantifying, and addressing inefficiencies.

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The Impact of Reimbursement Policy on Social Welfare, Revisit Rate, and Waiting Time in a Public Healthcare System: Fee-for-Service Versus Bundled Payment

Cited by 112 publications

References 46 publications

Outcome-Based Pricing for New Pharmaceuticals via Rebates

Outcome-Based Pricing for New Pharmaceuticals via Rebates

Hospital Readmissions Reduction Program Does Not Provide the Right Incentives: Issues and Remedies

OM Forum—Supply Chain Thinking in Healthcare: Lessons and Outlooks

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