Optimal price-setting in pay for performance schemes in health care

Søren Kristensen, Luigi Siciliani and Matt Sutton

Journal of Economic Behavior & Organization, 2016, vol. 123, issue C, 57-77

Abstract: The increased availability of process measures implies that the quality of health care is in some areas de facto verifiable. Optimal price-setting for verifiable dimensions of quality is well-described in the theoretical literature on incentive design. We seek to narrow the large gap that remains between actual price-setting behaviour in pay for performance schemes and the incentive design literature. We present a stylised model for hospital price setting for process measures of quality and show that optimal hospital prices should reflect the marginal benefit of the expected health gains, the weight given to patients’ benefit relative to profits, and the opportunity cost of public funds. Based on published estimates, we derive the optimal prices for three measures of quality that have been incentivised in the English National Health Service since April 2010 (treatment in an acute stroke unit, rapid brain imaging, and thrombolysis with alteplase). We then compare the optimal prices with the actual prices offered to hospitals in England under the Best Practice Tariffs scheme for emergency stroke care.

Keywords: Pay for performance; Provider behaviour; Optimal price-setting (search for similar items in EconPapers)
JEL-codes: I11 I18 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0167268115003248
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Optimal Price-Setting in Pay for Performance Schemes in Health Care (2014)
Working Paper: Optimal Price-Setting in Pay for Performance Schemes in Health Care (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:123:y:2016:i:c:p:57-77

DOI: 10.1016/j.jebo.2015.12.002

Access Statistics for this article

Journal of Economic Behavior & Organization is currently edited by Houser, D. and Puzzello, D.

More articles in Journal of Economic Behavior & Organization from Elsevier
Bibliographic data for series maintained by Catherine Liu ().