Abstract
This paper examines the consequences of the introduction of an activity-based reimbursement system on the behavior of physicians and hospital’s managers. We consider a private for-profit sector where both hospitals and physicians are initially paid on a fee-for-service basis. We show that the benefit of the introduction of an activity-based system depends on the type of interaction between managers and physicians (simultaneous or sequential decision-making games). It is shown that, under the activity-based system, a sequential interaction with physician leader could be beneficial for both agents in the private sector. We further model an endogenous timing game à la Hamilton and Slutsky (Games Econ Behav 2: 29–46, 1990) in which the type of interaction is determined endogenously. We show that, under the activity-based system, the sequential interaction with physician leader is the unique subgame perfect equilibrium.
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Notes
Source: OECD Health Data 2009.
Indeed, these are the main characteristics of the payment system implemented in France for all the hospitals in 2004 and known as “Tarification à l’Activité” or T2A. The system is based on a fixed payment identical for all hospital stays classified in the same Diagnosis Related Group.
A mix of these two-payment systems, called two-part tariffs, is most often used in practice. Our model remains however valid to deal with the impact of the introduction of any intermediate financing between the fee-for-service payment and the activity-based system.
In general, the interaction between the hospital and the physician is not restricted to the length of stay. As suggested by an anonymous referee, the hospital may press the physician to curb costs on variable expenditures in the operation theatre. In this case, one could model the physician costs as CP(e, q). However, our very general model (where no functional forms are specified for the demand and the cost functions) precludes to compute definite equilibria when modelling the physician costs in such a way. Hence, we have decided to keep our very general model and assuming that CP(e).
The assumption of budget neutrality has been imposed due to the fact that regulators ask the transition from a reimbursement system to another payment system to be budget neutral. For instance, the original legislation enabling Medicare’s prospective payment system for hospitals commanded that the transition from cost-plus reimbursement to prospective payment system be budget neutral. (A similar assumption has been made by Custer et al. [6])
The strategic complementarity between decisions in case of physician leadership contrasts with the strategic substitutability between decisions in case of manager leadership. Following Hamilton and Slutsky [11] and Amir [1], we can assert that only one player prefers his Stackelberg follower payoff to his simultaneous Nash payoff: the player whose best response function slopes up. See also Vives [23], Chap. 7.
The choice of not specifying functional forms for the demand and the cost functions have forced us to make many other simplifying assumptions. For instance, we have assumed that the length of stay is only related to physicians’ effort and that this effort is observable. Moreover, no asymmetric information has been introduced into the model. This lets room for future research.
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Acknowledgments
Ana Mauleon is Research Associate of the National Fund for Scientific Research (FNRS). We would like to thank Paul Belleflamme and two anonymous referees for helpful comments and suggestions. Part of this research was made while Hervé Leleu was visiting the CORE at the University of Louvain. David Crainich has benefited from the financial support of Merck Santé France. Financial support from Spanish Ministry of Sciences and Innovation under the project ECO2009-09120 and support of a SSTC grant from the Belgian Federal government under the IAP contract P6/09 (FUSL) are gratefully acknowledged.
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An erratum to this article can be found at http://dx.doi.org/10.1007/s10198-010-0275-x
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Crainich, D., Leleu, H. & Mauleon, A. Hospital’s activity-based financing system and manager: physician interaction. Eur J Health Econ 12, 417–427 (2011). https://doi.org/10.1007/s10198-010-0255-1
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DOI: https://doi.org/10.1007/s10198-010-0255-1