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Outcome Versus Service Based Payment in Health Care: Lessons from African Traditional Healers

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Kenneth Leonard
Joshua Graff Zivin

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Abstract

We compare the more common physician compensation method of fee-for-service to the less common payment-for-outcomes method. This paper combines an investigation of the theoretical properties of both of these payment regimes with a unique data set from rural Cameroon in which patients can choose between outcome and service based payments. We show that consideration of the role of patient effort in the production of health leads to important differences in the performance of these contracts. Theory and empirical evidence show that when illnesses require (or are responsive to) large amounts of both patient and practitioner effort, outcome based payment schemes are superior to effort based schemes. The traditional healer -- a practitioner who offers health services on an outcome-contingent basis -- is advanced as an important example of how patient effort can be better understood and tapped in health care.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9797.

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Date of creation: Jun 2003
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Handle: RePEc:nbr:nberwo:9797

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Find related papers by JEL classification:
I1 - Health, Education, and Welfare - - Health
D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Grossman, Michael, 1972. "On the Concept of Health Capital and the Demand for Health," Journal of Political Economy, University of Chicago Press, vol. 80(2), pages 223-55, March-Apr. [Downloadable!] (restricted)
  2. Leonard, Kenneth L., 2003. "African traditional healers and outcome-contingent contracts in health care," Journal of Development Economics, Elsevier, vol. 71(1), pages 1-22, June. [Downloadable!] (restricted)
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  3. Grossman, Sanford J & Hart, Oliver D, 1983. "An Analysis of the Principal-Agent Problem," Econometrica, Econometric Society, vol. 51(1), pages 7-45, January. [Downloadable!] (restricted)
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  4. McGuire, Thomas G., 2000. "Physician agency," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 9, pages 461-536 Elsevier. [Downloadable!] (restricted)
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  1. Udo Schneider, 2005. "Asymmetric Information and Outcome-based Compensation in Health Care – Theoretical Implications," HEW 0501006, EconWPA. [Downloadable!]
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