Treatment and referral decisions under di¤erent physician payment mechanisms

This paper analyzes and compares the incentive properties of some common payment mechanisms for GPs, namely fee for service (FFS), capitation and fundholding. It focuses on gatekeeping GPs and it speci…cally recognizes GPs heterogeneity in both ability and altruism. It also allows inappropriate care by GPs to lead to more serious illnesses. The results are as follows. Capitation is the payment mechanism that induces the most referrals to expensive specialty care. Fundholding may induce almost as much referrals as capitation when the expected costs of GPs care are high relative to those of specialty care. Although driven by …nancial incentives of di¤erent nature, the strategic behaviours associated with fundholding and FFS are very much alike. Finally, whether a regulator should use one or another payment mechanism for GPs will depend on (i) his priorities (either cost-containment or quality enhancement) which, in turn, depend on the expected cost di¤erence between GPs care and specialty care, and (ii) the distribution of pro…les (diagnostic ability and altruism levels) among GPs. Léger thanks HEC Montréal, FQRSC and SSHRC for funding. Jelovac thanks Banque Nationale Belge for funding. We thank two anonymous referees as well as seminar and conference participants at the University of Lausanne, GREQAM (Marseille), Maastricht University, Oslo University, GATE (Lyon), PSE (Paris), Université Catholique de Lille, University of Lund, CHESG (Ottawa), AHEC (Arizona State), CIRPÉE Conference in Health Economics at l’Université Laval (Québec), Health Economics Worskhop at the Norwegian School of Economics (Bergen), SSES Meetings (Lausanne), CEA (Vancouver) and ASHE (Duke) for helpful comments and suggestions. Previously titled: Physician Payment Mechanisms: Dynamics, Diagnostic Ability and Altruism. yCorresponding author: 3000 Côte-Sainte-Catherine, Montréal, Quebec, Canada H3T 2A7. E-mail: [email protected] 1 ha ls hs -0 06 50 93 3, v er si on 1 13 D ec 2 01 1 Author manuscript, published in "Journal of Health Economics 30, 5 (2011) pp. 880-893"