Treatment and referral decisions under different physician payment mechanisms

Area of Science:

• Health economics
• Primary care management
• Healthcare policy

Background:

• General Practitioners (GPs) are central to healthcare systems, acting as gatekeepers to specialist services.
• Understanding the financial incentives of different payment mechanisms is crucial for optimizing healthcare delivery and costs.
• GP heterogeneity in ability and altruism, alongside potential for inappropriate care, complicates payment mechanism design.

Purpose of the Study:

• To analyze and compare the incentive properties of Fee for Service (FFS), capitation, and fundholding payment models for GPs.
• To investigate how GP heterogeneity (ability and altruism) influences the effectiveness of these payment mechanisms.
• To assess the impact of payment mechanisms on the quality of care and potential for increased illness severity.

Main Methods:

• Comparative analysis of common GP payment mechanisms: Fee for Service (FFS), capitation, and fundholding.
• Economic modeling incorporating GP heterogeneity in diagnostic ability and altruism.
• Simulation of inappropriate care leading to more serious illnesses.

Main Results:

• Capitation payment models incentivize the highest rates of referrals to expensive specialty care.
• Fundholding can lead to high referral rates, comparable to capitation, particularly when GP care costs are high relative to specialist care.
• Strategic behaviors under fundholding and FFS show significant similarities despite differing financial incentives.

Conclusions:

• The choice of GP payment mechanism should align with regulatory priorities: cost containment versus quality enhancement.
• The optimal payment mechanism is contingent on the expected cost differential between primary and specialty care.
• GP population characteristics, including diagnostic ability and altruism distribution, are critical factors in selecting effective payment models.