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Optimal Price-Setting in Pay for Performance Schemes in Health Care

Listed author(s):
  • Søren Rud Kristensen
  • Luigi Siciliani
  • Matt Sutton

The increased availability of process measures implies that quality of care is in some areas de facto verifiable. Optimal price-setting for verifiable quality is well-described in the incentive-design literature. We seek to narrow the large gap between actual price-setting behaviour in Pay-For-Performance schemes and the incentive literature. We present a model for setting prices for process measures of quality and show that optimal prices should reflect the marginal benefit of health gains, providers’ altruism and the opportunity cost of public funds. We derive optimal prices for processes incentivised in the Best Practice Tariffs for emergency stroke care in the English National Health Service. Based on published estimates, we compare these to the prices set by the English Department of Health. We find that actual tariffs were lower than optimal, relied on an implausibly high level of altruism, or implied a lower social value of health gains than previously used.

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Paper provided by Department of Economics, University of York in its series Discussion Papers with number 14/03.

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Date of creation: Feb 2014
Handle: RePEc:yor:yorken:14/03
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Department of Economics and Related Studies, University of York, York, YO10 5DD, United Kingdom

Phone: (0)1904 323776
Web page: https://www.york.ac.uk/economics/
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