Provider behavior from FFS to DRGs payment: experimental evidence from real physicians

Area of Science:

• Health Economics
• Medical Policy
• Behavioral Economics

Background:

• Rising healthcare costs in China necessitate health insurance reform.
• Shift from Fee-for-Service (FFS) to Diagnosis-Related Groups (DRGs) aims for cost containment.
• DRGs introduce potential moral hazards like upcoding and undertreatment, threatening public health and insurance sustainability.

Purpose of the Study:

• To evaluate the impact of Diagnosis-Related Groups (DRGs) versus Fee-for-Service (FFS) payment systems on physician behavior.
• To analyze the effects of medical outcome uncertainty on DRG and FFS system performance.
• To investigate the influence of financial incentives and professional ethics on healthcare delivery under DRGs.

Main Methods:

• A lab-in-the-field experiment simulating FFS and DRG payment scenarios.
• Inclusion of real physicians to mimic practical healthcare decision-making.
• Incorporation of medical outcome uncertainty into the experimental design.

Main Results:

• DRGs were found to decrease overtreatment but increase risks of upcoding and undertreatment, especially under uncertainty.
• Physician behavior showed a tendency towards altruism, prioritizing case severity over fairness and efficiency.
• A conflict between financial incentives and professional ethics emerged, potentially compromising patient welfare under DRGs.

Conclusions:

• The study highlights significant moral hazards associated with DRGs, including upcoding and undertreatment.
• Physician behavior under DRGs presents challenges to insurance fund sustainability and patient welfare.
• Regulatory interventions are crucial to mitigate these moral hazards and ensure the long-term viability of the healthcare system.