Doctors' remuneration schemes and hospital competition in two-sided markets

David Bardey, Helmuth Cremer and Jean-Marie Lozachmeur
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Helmuth Cremer: TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - Comue de Toulouse - Communauté d'universités et établissements de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement
Jean-Marie Lozachmeur: TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - Comue de Toulouse - Communauté d'universités et établissements de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement

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Abstract: This paper studies the design of doctors' remuneration schemes. Two for-profit hospitals compete to attract patients and to affiliate doctors. The numbers of patients and doctors determine an hospital's quality level which is valued on both sides. Quality can be enhanced by doctors through a (costly) effort. We first consider pure salary, case payment or fee-for-service schemes on the doctors' side. Then, we study schemes that mix fee-for-service with either salary or case payments. We show that case payment schemes (either pure or in combination with fee-for-service) are more patient friendly than (pure or mixed) salary schemes. This comparison is exactly reversed on the doctors' side. Quite surprisingly, patients always lose when a fee-for-service scheme is introduced (pure or mixed). This is true even though the fee-for-service is the only way to induce the doctors to exert effort, and whatever the patients' valuation of this effort. In other words, the increase in doctors' effort brought about by the fee-for-service is more than compensated by the increase in fees faced by patients.

Date: 2012-11
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Published in The B.E. Journal of Economic Analysis & Policy, 2012, 12 (1), ⟨10.1515/1935-1682.3254⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05107818

DOI: 10.1515/1935-1682.3254

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