Paying for health gains

Luigi Siciliani; James Michael Gaughan; Nils Gutacker; Hugh Stanley Emrys Gravelle; Martin John Chalkley

Paying for health gains

Luigi Siciliani, James Michael Gaughan, Nils Gutacker, Hugh Stanley Emrys Gravelle, Martin John Chalkley

Research output: Working paper › Discussion paper

Abstract

Payments to healthcare providers are often based on the number of patients they treat according to their particular health condition with well-known limitations. Payment based on health outcomes, a form of pay-for-performance, has long been advocated as a possible solution. This study adopts a contract theory approach and illustrates how it can inform practical implementation of pay-for-performance schemes that reward health outcomes. We first provide a simple but general model on the design of an incentive
scheme that rewards providers for improved health, as a function of key parameters related to patient health benefits and provider costs. We then calibrate the model using data from two elective procedures, hip and knee replacement, using patient reported outcome measures. The pricing rule suggests that the bonus should be set to reflect the difference between the provider’s marginal cost of a health improvement before the policy intervention and the provider’s marginal cost evaluated at the target health set by the purchaser. We provide estimates of the optimal bonus for hip and knee replacement under a range of
assumptions about provider cost functions and the value of health improvements.

Original language	English
Place of Publication	York, UK
Publisher	Centre for Health Economics, University of York
Number of pages	29
Publication status	Published - Jul 2021

Publication series

Name	CHE Research Paper
Publisher	Centre for Health Economics, University of York
No.	183

Keywords

: hospitals
pay for performance
quality
health

Access to Document

CHERP183_Paying_Health_GainsFinal published version, 1.08 MB

https://www.york.ac.uk/media/che/documents/papers/researchpapers/CHERP183_Paying_Health_Gains.pdf

Cite this

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AU - Gravelle, Hugh Stanley Emrys

AU - Chalkley, Martin John

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N2 - Payments to healthcare providers are often based on the number of patients they treat according to their particular health condition with well-known limitations. Payment based on health outcomes, a form of pay-for-performance, has long been advocated as a possible solution. This study adopts a contract theory approach and illustrates how it can inform practical implementation of pay-for-performance schemes that reward health outcomes. We first provide a simple but general model on the design of an incentivescheme that rewards providers for improved health, as a function of key parameters related to patient health benefits and provider costs. We then calibrate the model using data from two elective procedures, hip and knee replacement, using patient reported outcome measures. The pricing rule suggests that the bonus should be set to reflect the difference between the provider’s marginal cost of a health improvement before the policy intervention and the provider’s marginal cost evaluated at the target health set by the purchaser. We provide estimates of the optimal bonus for hip and knee replacement under a range ofassumptions about provider cost functions and the value of health improvements.

AB - Payments to healthcare providers are often based on the number of patients they treat according to their particular health condition with well-known limitations. Payment based on health outcomes, a form of pay-for-performance, has long been advocated as a possible solution. This study adopts a contract theory approach and illustrates how it can inform practical implementation of pay-for-performance schemes that reward health outcomes. We first provide a simple but general model on the design of an incentivescheme that rewards providers for improved health, as a function of key parameters related to patient health benefits and provider costs. We then calibrate the model using data from two elective procedures, hip and knee replacement, using patient reported outcome measures. The pricing rule suggests that the bonus should be set to reflect the difference between the provider’s marginal cost of a health improvement before the policy intervention and the provider’s marginal cost evaluated at the target health set by the purchaser. We provide estimates of the optimal bonus for hip and knee replacement under a range ofassumptions about provider cost functions and the value of health improvements.

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