The Impact of Reimbursement Policy on Patient Welfare, Readmission Rate and Waiting Time in a Public Healthcare System: Fee-for-Service vs. Bundled Payment

This paper examines the impact of two reimbursement schemes on patient welfare, readmission rate, and waiting time in a three tiered public healthcare system comprising (a) a public funder who decides on the reimbursement rate to maximize patient welfare, (b) a public healthcare provider (HCP) who decides on the service rate (which affects readmission rate and operating cost), and (c) a pool of (waiting time sensitive) patients who decide whether or not to seek elective treatments. We focus our analysis on (1) a Fee-For-Service (FFS) scheme under which the HCP receives payment each time a patient is admitted (or readmitted); and (2) a Bundled Payment (BP) scheme under which the HCP receives a lump sum payment for the entire episode of care for each patient (regardless of the number of readmissions). By considering an M/M/1 queueing model with endogenous arrivals and readmissions, we analyze a three-stage Stackelberg game to determine the patient’s initial admission rate, the HCP’s service rate (which affects the readmission rate), and the funder’s reimbursement rate. This analysis enables us to compare the equilibrium outcomes (patient welfare, readmission rate and waiting time) associated with the FFS and BP schemes. We find that, when the patient pool is large, the BP scheme dominates in terms of higher patient welfare and lower readmission rate, but the FFS scheme dominates in terms of waiting time. However, when the patient pool is small, the BP scheme dominates the FFS scheme in all three performance measures.