Paying for health gains

Luigi Siciliani, James Gaughan, Nils Gutacker (), Hugh Gravelle and Martin Chalkley
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James Gaughan: Centre for Health Economics, University of York, York, UK.

No 183cherp, Working Papers from Centre for Health Economics, University of York

Abstract: Payments to healthcare providers are often based on the number of patients they treat according to their particular health condition with well-known limitations. Payment based on health outcomes, a form of pay-for-performance, has long been advocated as a possible solution. This study adopts a contract theory approach and illustrates how it can inform practical implementation of pay-for-performance schemes that reward health outcomes. We first provide a simple but general model on the design of an incentive scheme that rewards providers for improved health, as a function of key parameters related to patient health benefits and provider costs. We then calibrate the model using data from two elective procedures, hip and knee replacement, using patient reported outcome measures. The pricing rule suggests that the bonus should be set to reflect the difference between the provider’s marginal cost of a health improvement before the policy intervention and the provider’s marginal cost evaluated at the target health set by the purchaser. We provide estimates of the optimal bonus for hip and knee replacement under a range of assumptions about provider cost functions and the value of health improvements.

Keywords: hospitals; pay for performance; quality; health (search for similar items in EconPapers)
JEL-codes: I11 I14 L13 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2021-07
New Economics Papers: this item is included in nep-hrm, nep-ore and nep-reg
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https://www.york.ac.uk/media/che/documents/papers/ ... ing_Health_Gains.pdf First version, 2021 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:chy:respap:183cherp

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