Incentive Programs for Reducing Readmissions When Patient Care is Co-Produced

36 Pages Posted: 28 Sep 2015 Last revised: 30 Sep 2015

See all articles by Dimitrios Andritsos

Dimitrios Andritsos

HEC Paris - Operations Management and Information Technology

Christopher S. Tang

University of California, Los Angeles (UCLA) - Anderson School of Management

Date Written: September 27, 2015

Abstract

To reduce preventable readmissions, many healthcare systems are transitioning from Fee-for-Service (FFS) to other reimbursement schemes such as Pay-for-Performance (P4P) or Bundled Payment (BP) so that the funder of a healthcare system can transfer to the hospital some of the financial risks associated with patient re-hospitalizations. To examine the effectiveness of different schemes (FFS, P4P, and BP), we develop a "health co-production" model in which the patient's readmissions can be "jointly controlled" by the efforts exerted by both the hospital and the patient. Our analysis of the equilibrium outcomes reveals that FFS cannot entice the hospital and the patient to exert readmission-reduction efforts. Relative to BP, we find that P4P is more "robust" in the sense that it can induce readmission-reduction efforts under milder conditions. However, BP can induce greater efforts compared to P4P. More importantly, we characterize the conditions under which BP (or P4P) is the dominant scheme from the funder's perspective. Finally, we find that patient cost-sharing can generate two benefits: (a) it provides incentive for patients to exert efforts; and (b) if not excessive, it can reduce the readmission rate.

Keywords: co-productive services, hospital readmissions, pay-for-performance, bundled payment

Suggested Citation

Andritsos, Dimitrios and Tang, Christopher S., Incentive Programs for Reducing Readmissions When Patient Care is Co-Produced (September 27, 2015). HEC Paris Research Paper No. MOSI-2015-1110, Available at SSRN: https://ssrn.com/abstract=2666215 or http://dx.doi.org/10.2139/ssrn.2666215

Dimitrios Andritsos (Contact Author)

HEC Paris - Operations Management and Information Technology ( email )

1, rue de la Liberation
Jouy en Josas, 78351
France

Christopher S. Tang

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

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