Contracts for primary and secondary care physicians and equity-efficiency trade-offs

We analyse how payment systems for general practitioners (GPs) and hospital specialists affect inequalities in healthcare treatments, referrals, and patient health. We present a model of contracting with two providers, a GP and a hospital specialist, with patients differing in severity and socioeconomic status, and the GP only receiving an informative signal on severity. We investigate four health system configurations depending on whether the GP refers and the specialist treats only high-severity patients or patients with any severity. We show that an increase in the GP fee, which induces GPs to refer only high-severity patients, increases utilitarian welfare but also increases inequities in access to specialist visits. A reduction in the DRG reimbursement to hospital specialists, which induces specialists to treat only high-severity patients, increases utilitarian welfare but also increases inequities in access to specialist visits when the GP refers only high-severity patients.