Skip to main content

Advertisement

SpringerLink
Log in

The Economics of Health System Payment

  • Published:
De Economist Aims and scope Submit manuscript

Summary

Health care takes up 10 to 15 percent of GDP in most countries. In this lecture, I consider the efficiency of the medical system, focusing on the potential for payment reform to increase efficiency. Traditionally, medical care reimbursement has been based on the quantity and intensity of the services provided. While this system encouraged valuable innovation, it failed when high quality is not achieved by increased quantity. In theory, a more efficient system could be achieved by paying for medical care on the basis of quality of care provided, not just quantity. I discuss the design of such a payment system and review the literature on how pay-for-performance systems have worked in practice. Cautious optimism about the potential for efficiency gains from payment reform is warranted.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  • R.J. Blendon H. Taylor (1989) ArticleTitle‘Views on Health Care: Public Opinion in Three Nations’ Health Affairs 8 IssueID1 149–157 Occurrence Handle10.1377/hlthaff.8.1.149

    Article  Google Scholar 

  • R.J. Blendon R. Leitman I. Morrison K. Donelan (1990) ArticleTitle‘Satisfaction with Health Systems in Ten Nations’ Health Affairs 9 IssueID2 185–192 Occurrence Handle10.1377/hlthaff.9.2.185

    Article  Google Scholar 

  • R.J. Blendon C. Schoen C.M. DesRoches R. Osborn K.L. Scoles K. Zapert (2002) ArticleTitle‘Inequities in Health Care: A Five-Country Survey’ Health Affairs 21 IssueID3 182–91 Occurrence Handle10.1377/hlthaff.21.3.182

    Article  Google Scholar 

  • R.J. Blendon C. Schoen C. DesRoches R. Osborn K. Zapert (2003) ArticleTitle‘Common Concerns Amid Diverse Systems: Health Care Experiences in Five Countries’ Health Affairs 22 IssueID3 106–121 Occurrence Handle10.1377/hlthaff.22.3.106

    Article  Google Scholar 

  • Beaulieu, N.D.M., Cutler and K. Ho (2006), The Business Case for Diabetes Disease Management at Two Managed Care Organizations,’ Forum for Health Economics and Policy, forthcoming.

  • Cutler, D.M., M. McClellan, J.P. Newhouse and D. Remler (1998), ‘Are Medical Prices Falling?’ Quarterly Journal of Economics, 113(4), November, p. 991–1024

    Google Scholar 

  • Cutler, D.M. (2002), ‘Equality, Efficiency, and Market Fundamentals: The Dynamics of International Medical Care Reform,’ Journal of Economic Literature, p. 881–906.

  • D.M. Cutler (2004) Your Money or Your Life: Strong Medicine for America’s Health Care System Oxford University Press New York

    Google Scholar 

  • Cutler, D.M. and R. Zeckhauser (2002), ‘The Anatomy of Health Insurance,’ in: Anthony Culyer and Joseph P. Newhouse (eds.) The Handbook of Health Economics, Vol. 1A, North Holland.

  • D.M. Cutler Huckman Robert M.B. Landrum (2004) ArticleTitle‘The Role of Information in Medical Markets: An Analysis of Publicly Reported Outcomes in Cardiac Surgery’ American Economic Review 94 IssueID2 342–346

    Google Scholar 

  • K.R.J. Donelan C. Blendon Davis Schoen K. Binns Katherine (1999) ArticleTitle‘The cost of health system change: public discontent in five nations’ Health Affairs 18 IssueID3 206–216 Occurrence Handle10.1377/hlthaff.18.3.206

    Article  Google Scholar 

  • D. Dranove D. Kessler M. McClellan M. Satterthwaite (2003) ArticleTitle‘Is More Information Better? The Effects of ‘Report Cards’ on Health Care Providers’ Journal of Political Economy 111 IssueID3 555–588 Occurrence Handle10.1086/374180

    Article  Google Scholar 

  • R. Ellis T. McGuire (1986) ArticleTitle‘Provider Behavior Under Prospective Reimbursement’ Journal of Health Economics 5 129–151 Occurrence Handle10.1016/0167-6296(86)90002-0

    Article  Google Scholar 

  • E.S. Fisher D.E. Wennberg T.A. Stukel D.J. Gottlieb F.L. Lucas É.L. Pinder (2003a) ArticleTitle‘The Implications of Regional Variations in Medicare Spending Part 1: The Content, Quality, and Accessibility of Care’ Annals of Internal Medicine 138 IssueID4 273–287

    Google Scholar 

  • E.S. Fisher D.E. Wennberg T.A. Stukel D.J. Gottlieb F.L. Lucas É.L. Pinder (2003b) ArticleTitle‘The Implications of Regional Variations in Medicare Spending. Part 2: Health Outcomes and Satisfaction with Care’ Annals of Internal Medicine 138 IssueID4 288–298

    Google Scholar 

  • S.S. Gottlieb R.J. McCarter R.A. Vogel (1998) ArticleTitle‘Effect of Beta-Blockade on Mortality among High-Risk and Low-Risk Patients after Myocardial Infarction’ New England Journal of Medicine 339 489–497 Occurrence Handle10.1056/NEJM199808203390801

    Article  Google Scholar 

  • E.L. Hannan H. Kilburn M. Racz E. Shields M.R. Chassin (1994) ArticleTitle“Improving the Outcomes of Coronary Artery Bypass Surgery in New York State Journal of the American Medical Association 271 IssueID10 761–766 Occurrence Handle10.1001/jama.271.10.761

    Article  Google Scholar 

  • Landrum, M.B., (2005) D.M. Cutler and R. Huckman (2005), ‘The Impact of Quality Reporting on Provider Performance,’ mimeo.

  • McGuire, T.G. (2000), Physician Agency, in: A. Culyer and J.P. Newhouse (ed.), The Handbook of Health Economics, Vol 1A, North Holland.

  • InstitutionalAuthorNameNational Center for Quality Assurance (2005) The State of Health Care Quality National Center for Quality Assurance Washington, D.C.

    Google Scholar 

  • Norton, E.C. (2001), ‘Long-Term Care,’ in: A. Culyer and J.P. Newhouse (ed.), The Handbook of Health Economics, Vol. 1B, North Holland.

  • Organization for Economic Cooperation and Development (2002), OECD Study on Ageing-Related Disease: What is Best and at What Cost? OECD, Washington, D.C.

  • M.B. Rosenthal R.G. Frank Z. Li A.M. Epstein (2005) ArticleTitle‘Early Experience with pay-for-performance from concept to practice’ JAMA 294 1788–1793 Occurrence Handle10.1001/jama.294.14.1788

    Article  Google Scholar 

  • Scherer, F.M. (2000), ‘The Pharmaceutical Industry,’ in: A.Culyer and J.P. Newhouse (ed.), The Handbook of Health Economics, Vol. 1B, North Holland

  • E.C. Schneider A.M. Epstein (1998) ArticleTitle“Use of Public Performance Reports A Survey of Patients Undergoing Cardiac Surgery” JAMA 279 1638–1642 Occurrence Handle10.1001/jama.279.20.1638

    Article  Google Scholar 

  • Schoen, C. R. Osborn, P.T.Huynh, M.Doty, K.Davis, K.Zapert and J.Peugh (2004), ‘Primary Care And Health System Performance: Adults’ Experiences In Five Countries, Health Affairs, web exclusive, W4-487–W4-503.

  • W.P.M.M. Ven Particlevan de R.P. Ellis (2000) ‘Risk adjustment in competitive health plan markets,’ chapter 14 A.J. Culyer J.P. Newhouse (Eds) Handbook in Health Economics Elsevier North Holland 755–845

    Google Scholar 

  • US Preventive Services Task Force, Agency for Healthcare Research and Quality, Rockville, MD. September 2003; accessed on the web at http://www.ahrq.gov/clinic/uspstf/resource.htm

Download references

Author information

Authors and Affiliations

  1. Harvard University and NBER, Cambridge

    David M. Cutler

  2. Department of Economics, Harvard University, Cambridge, MA, 02138

    David M. Cutler

Authors
  1. David M. Cutler
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to David M. Cutler.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Cutler, D.M. The Economics of Health System Payment. De Economist 154, 1–18 (2006). https://doi.org/10.1007/s10645-006-6483-1

Download citation

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10645-006-6483-1

Keywords

JEL Code(s)

Search

Navigation