Improving Access and Appropriate Use for Substitutable Medical Treatments

Abstract

Problem definition: A medical condition can often be treated in one of several ways with varying prices and whose appropriateness is patient-specific. Higher prices may limit access to one or more of the options. Providers may also have financial incentives to recommend the higher-priced treatment to patients even when it is not the best option. Such practices may lead to over-treatment hindering patients’ access to appropriate and affordable care. A common tool used by social planners is price regulation, like the 2017 cardiac stent device price cap by the Government of India, may have unintended consequences. Outcome-based payments, recognized as a tool for appropriate and affordable care, may not be plausible in all geographies. Methodology/results: We build a game theoretical model to study the performance of price cap regulation and outcome-based payment in improving access and promoting appropriate use. Our model investigates how features such as information scarcity and limited societal financial resources influence regulatory design and performance. We find that the currently prevalent price cap regulation fails to induce appropriate use unless sufficient number of patients can assess, perhaps through a second opinion, a provider’s recommendation. We propose an alternative hybrid policy that combines a price cap and an outcome-based payment that aligns the provider’s actions with the social planner’s to improve the healthcare access and appropriate use subject to sufficient budget. However, when budgets are tight, there is a trade-off between the two objectives. Particularly, the regulator may permit misuse to widen healthcare access when the budget is severely constrained. Managerial implications: Our proposed policy constitutes a robust and intuitive tool to promote access to care and its appropriate use. We underscore the inherent trade-off between these dual objectives, exacerbated by budget constraints.

Note:
Funding Information: None to declare.

Declaration of Interests: None to declare.

Keywords: health policy, price regulations, pay-for-performance, information asymmetry