Value-Based Pricing of Health Services With Health Equity Considerations

Many health systems aim to reduce health inequalities. Reimbursement mechanisms for healthcare providers, including pay-for-performance, are common policy levers to align provider behavior with health systems objectives. We develop a methodology to incorporate equity concerns into value-based pricing in the English National Health Service. We focus on socioeconomic inequalities in health measured by deprivation quintiles. We show how changes in the design of a national pay-for-performance scheme in primary care, the Quality Outcome Framework, can be evaluated in terms of their effects on the level and distribution of health across socioeconomic status.

After developing our theoretical framework, which is based on Distributional Cost-Effectiveness Analysis and contract theory, we calibrate a model of physician behavior using information on costs and health benefits of different incentivized activities, achievement rates, and supply responsiveness to prices. We evaluate the effect of hypothetical 20% increases in price of 1 incentivized activity, which is financed by a reduction in another price to retain budget neutrality. Trade-offs between efficiency and socioeconomic inequalities in health are evaluated using the Equally Distributed Equivalent level of health.

We illustrate our methodology using 3 scenarios: changes in prices for 2 incentivized activities for the same health condition (diabetes), different health conditions (diabetes and chronic obstructive pulmonary disease), and across socioeconomic groups within the same activity (flu vaccination for diabetes patients).

Our analysis illustrates how inequality aversion can be incorporated into value-based pricing when assessing the effect of financial incentives on the health distribution across socioeconomic groups.