Topic 8. Reimbursement and Incentive Contracts in Health Care

Health Economics

Nancy Devlin

11th March 2004

Topic 8. Reimbursement and incentive contracts in health care

The aim of this session is to consider alternative means by which providers of health care services might be reimbursed and, in each case, to consider the incentives these create and evidence on providers’ behaviour. By the end of this topic, you should be able to list and appraise the principal methods available for contracting with and reimbursing health care providers and relate these to (1) issues regarding the payment of GPs and consultants in the NHS and (2) issues regarding the introduction of fixed-price HRGs as the basis for paying hospitals. Although our focus in this session is on paying providers in the NHS, note that an extensive US literature exists on managed care (HMOs, PPOs) cf. ‘traditional insurance’, and the shift from ‘cost reimbursement’ to ‘prospective payment systems’ (PPS) such as DRGs, that is also relevant. Most of the US textbooks (Santerre and Neun; Folland Goodman and Stano; Phelps; Getzen) contain material on these issues.

Guest lecturer:Professor Alan Maynard, York Health Policy group, University of York

Key reading:

Donaldson, C., Gerard, K. (1993) Countering doctor moral hazard and Countering moral hazard in the hospital sector. Chapters 7 and 8 in: Economics of health care financing: the visible hand. Macmillan. [library shelfmark: 338.433621DON]

Maynard, A., Bloor, K. (2003) Do those who pay the piper call the tune? Health Policy Matters. October 2003.

Further reading:

Chalkely, M., Malcolmson, J. (2000) Government purchasing of health services. Chapter 15 in: Handbook of Health Economics Volume 1A. [library shelfmark: 338.433621 CUL].

Getzen, T. (1997) Physicians Chapter 5 in: Health Economics: fundamentals and flows of funds. Wiley. (see especially section 5.1: Physician payment)

Folland, S, Goodman, A C., Stano, M. (2001) Government regulation – principal regulatory mechanisms. Chapter 19 in: The economics of health and health care. Prentice Hall. [library shelfmark: 338.433621 FOL]

Mooney, G. (1994) Paying doctors – and non-paying patients. Chapter 9 in: Key issues in health economics. Harvester Wheatsheaf. [library shelfmark: 362.10681 MOO]

Study questions:

1. Given the extensive role of agency relationships in the health care sector what incentive mechanisms exist to establish efficient levels of reimbursement amongst providers? (from the 2000 exam).

2. Why is it difficult to provide efficient reimbursement incentives to health care providers? (from the 2001 exam)

3. Explain the difference between a preferred provider organisation and a health maintenance organisation. Which of the two is likely to be more effective in containing costs within a system of private health insurance? Explain your answer. (from the 2002 exam)

4. Discuss optimal reimbursement mechanisms in the health care sector with reference to hospitals. What are they trying to achieve? (from the 2002 exam).

Chapter 12 in Folland, Goodman and Stano contains an excellent set of Discussion Questions on managed care – see p.279.