Does an economic incentive affect provider behavior? Evidence from a field experiment on different payment mechanisms

Area of Science:

• Health Economics
• Medical Practice Management
• Healthcare Policy

Background:

• Physician reimbursement models influence healthcare delivery.
• Understanding how different payment systems affect physician behavior is crucial for healthcare system efficiency.
• Previous research often relied on laboratory settings, limiting real-world applicability.

Purpose of the Study:

• To analyze how fee-for-service (FFS), capitation (CAP), and diagnosis-related group (DRG) payment systems affect the quantity of medical services physicians provide.
• To examine these effects across patients with varying health statuses and illnesses.
• To compare findings from a field experiment to laboratory-based studies.

Main Methods:

• A field experiment was designed, adapting a laboratory experiment by Heike Hennig-Schmidt.
• 220 physicians served as experimental subjects, replacing medical students for greater real-world relevance.
• Data on the quantity of services provided under FFS, CAP, and DRG systems for diverse patient conditions were collected and statistically analyzed.

Main Results:

• Payment systems and patient health status significantly influenced the quantity of medical services (p < 0.000). Illness type had a negligible effect (p = 0.793).
• FFS and CAP led to over-servicing healthier patients and under-servicing those in poor health.
• DRG systems resulted in over-servicing good health patients while under-servicing intermediate and bad health patients.

Conclusions:

• Physician payment structures and associated costs/prices directly impact the volume of services rendered.
• A blended approach to payment systems is recommended to align physician and patient interests and optimize incentive structures.
• While field experiments enhance external validity, parameter abstraction can still pose limitations.