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Doctors' Remuneration Schemes and Hospital Competition in a Two-Sided Market

Author

Listed:
  • Bardey David

    (University of Los Andes and Toulouse School of Economics)

  • Cremer Helmuth

    (Toulouse School of Economics (IDEI, IuF and GREMAQ))

  • Lozachmeur Jean-Marie

    (Toulouse School of Economics (CNRS, IDEI and GREMAQ))

Abstract

This paper studies the design of doctors' remuneration schemes. Two for-profit hospitals compete to attract patients and to affiliate doctors. The numbers of patients and doctors determine an hospital's quality level which is valued on both sides. Quality can be enhanced by doctors through a (costly) effort. We first consider pure salary, case payment or fee-for-service schemes on the doctors' side. Then, we study schemes that mix fee-for-service with either salary or case payments. We show that case payment schemes (either pure or in combination with fee-for-service) are more patient friendly than (pure or mixed) salary schemes. This comparison is exactly reversed on the doctors' side. Quite surprisingly, patients always lose when a fee-for-service scheme is introduced (pure or mixed). This is true even though the fee-for-service is the only way to induce the doctors to exert effort, and whatever the patients' valuation of this effort. In other words, the increase in doctors' effort brought about by the fee-for-service is more than compensated by the increase in fees faced by patients.

Suggested Citation

  • Bardey David & Cremer Helmuth & Lozachmeur Jean-Marie, 2012. "Doctors' Remuneration Schemes and Hospital Competition in a Two-Sided Market," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 12(1), pages 1-31, November.
    • Handle: RePEc:bpj:bejeap:v:12:y:2012:i:1:p:1-31:n:50
    DOI: 10.1515/1935-1682.3254
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    References listed on IDEAS

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