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Pareto rate setting strategies: an application to medicaid drug reimbursement

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Abstract

The major problem in reimbursement rate setting has been to develop approaches capable of identifying the inefficient deliverers of service, while recognizing legitimate differences in environmental factors and service orientation. This article suggests several new analytical approaches, based on various types of Pareto comparisons. Pareto efficiency is a relative approach which as a by-product constructs a peer group of other operating units which are matched on environmental factors, level of outputs provided, and level of resources consumed. The analysis utilizes straightforward linear programming formulations or mixed integer LP's. The various approaches are demonstrated using actual data from 68 pharmacies. Medicaid prescription drug dispensing fees are used to illustrate a scheme for encouraging increased efficiency on the part of the pharmacies.

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Authors and Affiliations

  1. The Fuqua School of Business, Duke University, 27706, Durham, NC, USA

    Richard C. Morey & David A. Dittman

  2. School of Accountancy, San Diego State Universety, 92182, San Diego, CA, USA

    Robert Capettini

Authors
  1. Richard C. Morey
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  2. Robert Capettini
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  3. David A. Dittman
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Morey, R.C., Capettini, R. & Dittman, D.A. Pareto rate setting strategies: an application to medicaid drug reimbursement. Policy Sci 18, 169–200 (1985). https://doi.org/10.1007/BF00136720

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