Outcomes-Based Reimbursement Policies for Chronic Care Pathways

78 Pages Posted: 24 May 2017 Last revised: 27 Jul 2021

See all articles by Sasa Zorc

Sasa Zorc

University of Virginia - Darden School of Business

Stephen E. Chick

INSEAD - Technology and Operations Management

Sameer Hasija

INSEAD - Technology and Operations Management

Date Written: July 27, 2021

Abstract

We consider contracting issues in the care of patients with chronic conditions. We do so both analytically - in the principal-agent framework - and with numerical experiments calibrated using data from the United Kingdom's NHS. The government, acting as a principal, contracts with several health care providers in an effort to maximize population health minus the cost. We consider the decision of whether to contract with individual health care providers or groups of such providers, as well as which contract type to use. We show that the first-best outcome can be achieved by both individual and group contracts through the use of either outcomes-adjusted capitation or outcomes-adjusted per-patient contracts. We also examine possible issues which can arise as the entities that are contracted with are not necessarily the ones making decisions about patient care. Individual contracts can fail to provide the desired incentives if providers under such contracts jointly make decisions about the care for their patients (collusion); however, so can group contracts if the group members fail to coordinate their actions (free riding). We show that both of those result in potential deviations from optimal decisions, with direction and magnitude of deviation depending on the contract type. In both our analytical and numerical results, individual outcomes-adjusted capitation contracts emerge as the best performing contract type, due to their remarkable robustness to these adverse effects, even when collusion and free riding are present but not accounted for in the contract design.

Keywords: Health Care, Contracting, Moral Hazard, Queue, Outcomes, Value Based, Collusion, Free riding

Suggested Citation

Zorc, Sasa and Chick, Stephen E. and Hasija, Sameer, Outcomes-Based Reimbursement Policies for Chronic Care Pathways (July 27, 2021). INSEAD Working Paper No. 2021/38/TOM, Available at SSRN: https://ssrn.com/abstract=2973048 or http://dx.doi.org/10.2139/ssrn.2973048

Sasa Zorc

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

HOME PAGE: http://https://www.darden.virginia.edu/faculty-research/directory/sasa-zorc

Stephen E. Chick (Contact Author)

INSEAD - Technology and Operations Management ( email )

Boulevard de Constance
77 305 Fontainebleau Cedex
France

HOME PAGE: http://faculty.insead.edu/chick/

Sameer Hasija

INSEAD - Technology and Operations Management ( email )

Boulevard de Constance
77 305 Fontainebleau Cedex
France

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