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Treatment and referral decisions under different physician payment mechanisms

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  • Allard, Marie
  • Jelovac, Izabela
  • Léger, Pierre Thomas

Abstract

This paper analyzes and compares the incentive properties of some common payment mechanisms for GPs, namely fee for service (FFS), capitation and fundholding. It focuses on gatekeeping GPs and it specifically recognizes GPs heterogeneity in both ability and altruism. It also allows inappropriate care by GPs to lead to more serious illnesses. The results are as follows. Capitation is the payment mechanism that induces the most referrals to expensive specialty care. Fundholding may induce almost as much referrals as capitation when the expected costs of GPs care are high relative to those of specialty care. Although driven by financial incentives of different nature, the strategic behaviors associated with fundholding and FFS are very much alike. Finally, whether a regulator should use one or another payment mechanism for GPs will depend on (i) his priorities (either cost-containment or quality enhancement) which, in turn, depend on the expected cost difference between GPs care and specialty care, and (ii) the distribution of profiles (diagnostic ability and altruism levels) among GPs.

Suggested Citation

  • Allard, Marie & Jelovac, Izabela & Léger, Pierre Thomas, 2011. "Treatment and referral decisions under different physician payment mechanisms," Journal of Health Economics, Elsevier, vol. 30(5), pages 880-893.
    • Handle: RePEc:eee:jhecon:v:30:y:2011:i:5:p:880-893
    DOI: 10.1016/j.jhealeco.2011.05.016
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    More about this item

    Keywords

    Ability; Altruism; Capitation; Fee for service; Fundholding;
    All these keywords.

    JEL classification:

    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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