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M4: Provider payment incentives

17 important questions on M4: Provider payment incentives

Name four characteristics of base payment and Pay-for-performance. For two characteristics, think about their use/presence and relation to performance.

Base payment:

Always present
Not directly related to performance
Vast majority of providers' revenues
Various methods possible

Pay-for-performance:

Can be used on top of base payment
Directly related to performance
Meaningful indicators necessary
Many design options

Which two types of financial risk can be distinguished? And give an example of both:

Insurance (probability) risk: Unexpected events. The chance of having a severe or less severe patient. It is a random event.

e.g. People who get infected by a virus, someone who gets hit by a car.

Often this is the case when something happens before you see the provider.

Performance (technical) risk: The provider makes a mistake and therefore the patient has a lifelong injury or handicap.

This could have been prevented. Thus, this is influenced by the provider.

Jegers et al. Makes a distinction based on unit of payment, which four categories do they describe?

Per service (fee-for-service) or diem (patient-day)
Per case/episode or condition (episode/bundled payment)
Per enrolled person (capitation payment)
Per period (salary/budget)

Do prospective or retrospective systems stimulate cost containment?
And to what extent?

Prospective systems, but tho what extent is it determined by the unit of payment.

Draw the payment system & risk of Miller with the insurance risk and the performance risk:

Fee-for-service: performance risk
Episode-of-care: performance risk
comprehensive care: performance risk
traditional capitation: performance & insurance risk

Utilization patterns of physicians are different and can be explained by physicians preferences and the nature of the work setting.
Which physicians (conservative/aggressive) prefer:
To be salaried or paid FFS (payment method)?
Work in a health centre or work independent (nature of the work-setting)?

Physicians with conservative practice styles may prefer to be salaried and work in a health centre, while physicians with more aggressive styles may prefer to be independent and paid FFS.

What are three limitations of blended payment?

Perverse incentives in pure base-payment methods only attenuated (not entirely eliminated).
No combination available in which quality is explicitly stimulated (might be solved by P4P)
Sophistication in provider payment design creates its own difficulties (complexity), with several effects in practice:

Preference for simple over complex payment systems
Nonfinancial schemes to complement payment incentives
Increasing importance of organizatonial structures

What is a provider payment system?
Who are providers?

The way in which money is allocated to providers by payers. Providers can be individual practitioners (e.g. GPs or specialists) and organizations (e.g. hospitals or nursing homes).
Distinction between Funding for operational costs of practice/organization (e.g. other staff, ORs, materials, drugs) Physician’s labor Both components are usually integrated for individual practitioners, but sometimes split for organizations

Give three reasons why financial incentives are relevant in HC

They are always present (in any sector of the economy) and health care is not different
Providers respond to financial incentives and can influence demand
Providers do not always act as a perfect agent of patients

Given that some payment method must be devised and the providers’ ability and willingness to influence demand, a relevant question is ..?

How should payment incentives be structured to obtain optimal provider performance, i.e. to provide the optimal amount of effort directed toward the right activities at the right time and place, with the best possible outcomes for patients at the lowest possible costs?

Analysis of provider payment therefore falls within the larger economic literature on incentive contracts known as “agency theory” Give the characteristics of the agency theory (3X)

Contractual transactions between 2 unequally informed parties
Ill-informed principal delegates work to well-informed agent, while trying to induce certain behavior
Financial incentives are just one among the many mechanisms for eliciting desired behavior

When does info asymmetry becomes problematic?

In the case of conflicting interests, because then the agent has an incentive to exploit his information surplus, which may result in agency problems

What are the limits of payment incentives and the three implications?

Multitasking and incomplete contracts greatly complicate payment system design
This has several implications:
Preference for simple over complex payment systems Reliance on nonfinancial schemes to complement payment incentives Increasing importance of organizational structures.

In which four ways can the payer influence location of risk via the payment system?

Risk bearing: payer bears full risk
Risk shifting: provider bears full risk (full capitation model, also insurance risk to provider)
Risk splitting: first-best, but unfeasible because of large grey area
Risk sharing: second-best, but feasible (still some insurance risk to provider)

Study Gosden et al. (2001) What are the conclusions about payment methods and physician behaviour?

Conclusions:
method of payment influences physician behavior
FFS physicians do more than capitated or salaried physicians

Study Van Dijk et al. (2013) What is the study and what are the conclusions about payment methods and physician behavior?

Dutch GP payment system:
< 2006: public and private insurance system
< 2006: capitation for public, FFS for private
≥ 2006: mix of capitation and FFS for all insured

Main finding: increase in GP-initiated visits 5% larger in formerly publicly insured

Study Douven et al. (2015) What is the study and what are the conclusions about payment methods and physician behavior?

Can variation in hospital care be explained by differences in payment method for medical specialists?
Adjusted # treatments higher in areas with many FFS specialists than in areas with many salaried specialists
Overall: 1% increase in # specialists leads to:
0,40% increase in # treatments for FFS
0,15% increase in # treatments for salaried

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Economics and financing of health care (flashcards)

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M4: Provider payment incentives

17 important questions on M4: Provider payment incentives

Name four characteristics of base payment and Pay-for-performance. For two characteristics, think about their use/presence and relation to performance.

Which two types of financial risk can be distinguished? And give an example of both:

Jegers et al. Makes a distinction based on unit of payment, which four categories do they describe?

Do prospective or retrospective systems stimulate cost containment?And to what extent?

Draw the payment system & risk of Miller with the insurance risk and the performance risk:

Utilization patterns of physicians are different and can be explained by physicians preferences and the nature of the work setting. Which physicians (conservative/aggressive) prefer:To be salaried or paid FFS (payment method)?Work in a health centre or work independent (nature of the work-setting)?

What are three limitations of blended payment?

What is a provider payment system?Who are providers?

Give three reasons why financial incentives are relevant in HC

Given that some payment method must be devised and the providers’ ability and willingness to influence demand, a relevant question is ..?

Analysis of provider payment therefore falls within the larger economic literature on incentive contracts known as “agency theory” Give the characteristics of the agency theory (3X)

When does info asymmetry becomes problematic?

What are the limits of payment incentives and the three implications?

In which four ways can the payer influence location of risk via the payment system?

Study Gosden et al. (2001) What are the conclusions about payment methods and physician behaviour?

Study Van Dijk et al. (2013) What is the study and what are the conclusions about payment methods and physician behavior?

Study Douven et al. (2015) What is the study and what are the conclusions about payment methods and physician behavior?

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Do prospective or retrospective systems stimulate cost containment?
And to what extent?

What is a provider payment system?
Who are providers?

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