Economics - Paying Providers Of Health Care - Paying Hospitals

Front 1

What is multi-tasking?

Back 1

Challenge of designing incentives to motive appropriate effort across multiple tasks when desired outcomes for some tasks are more difficult to measure than others (Eggelston, 2004)

Front 2

Why is a mixed payment system optimal?

Back 2

- Helps create robust system less prone to distortions

- Helps balance incentives for quality effort across services; Advantage in balancing contractible and non-contractible quality.

- Best when we cannot observe everything. (when we have x that is observable and y that is not observable)

Front 3

What is the model for paying hospitals?

Back 3

TR = a +bx
TC = x + y
TR = TC
a + bx = x + y

Front 4

What are some distortions that might occur if the balance of fixed vs bonus (b) payments is not right?

Back 4

- Since function of b in nonlinear, high b will cause large distortions and make producing quality much more costly compared to volume.

- More incentive to cut quality, rather than volume.
A $100 million cut in volume will result in $100 million deficit, while a $100 million cut in quality will result in balance.

- High b will give strong incentive to cut things not in payment system (ie quality)

- Only incentivizing observable (ie volume) gives strong incentives to focus only on that.

Front 5

What are 4 implications of this model due to the non-linear function of b?

Back 5

1) Worse to set b too high than too low; b grows very quickly to right of b*

2) With full info, will set b higher than with uncertainty.

3) WIth uncertainty, will be afraid to set b too high and set lower to guard against distortions

4) Large disagreement --> Large distortions (ie if govt care more about volume and doctors more about quality, the govt will have to incentivize physician behavior with higher b, thus causing distortions.)

Front 6

What are some conclusions about multi-tasking, payment system and associated distortions?

Back 6

- Multi-tasking implies that payers should use p4p cautiously as long as quality is only partially rewarded or imperfect (ie as long as there are non-contractible unobservable qualities in the system)

- Mixed payment systems lessen distortions in effort allocation when p4p is imperfect, thus promoting non-contractible dimensions of quality that complement treatment.

- Mixed payment systems helps p4p avoid perversely rewarding providers for skimping on non-contractible dimensions of quality.