The Optimality of Hospital Financing System: The Role of Physician-Manager Interactions

CORE Discussion Paper No. 2006/5

16 Pages Posted: 6 Jul 2006

See all articles by David Crainich

David Crainich

Catholic University of Lille - Faculté Libre des Sciences Economiques (FLSE)

Hervé Leleu

Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE)

Ana Mauleon

Université Saint-Louis - Bruxelles; Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE)

Date Written: February 2006

Abstract

In a paper published by Ma (1994) it was argued that the prospective payment system in the hospital industry was superior to the cost based reimbursement system to achieve both cost reduction and quality improvement objectives. In the analysis, it was assumed that quality and costs decisions were made by a single agent. Our paper compares these two financing systems assuming that the main decisions taken within the hospital are shared between physicians (quality of treatment) and hospital managers (cost reduction). If Ma's conclusions hold in the US context (where the hospital managers bear the whole cost of treatment), we show that the ability of a prospective payment system to achieve both objectives is very depending of the type of interaction between the agents when physicians bear a part of the treatment cost as it is the case in many European countries.

Keywords: Hospital's financing system, strategic interaction, prospective payment system

JEL Classification: H51, I18, D21

Suggested Citation

Crainich, David and Leleu, Hervé and Mauleon Echeverria, Ana Carmen, The Optimality of Hospital Financing System: The Role of Physician-Manager Interactions (February 2006). CORE Discussion Paper No. 2006/5. Available at SSRN: https://ssrn.com/abstract=912673 or http://dx.doi.org/10.2139/ssrn.912673

David Crainich

Catholic University of Lille - Faculté Libre des Sciences Economiques (FLSE) ( email )

60 Boulevard Vauban
Lille Cedex, 59030
France

Hervé Leleu (Contact Author)

Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE) ( email )

34 Voie du Roman Pays
B-1348 Louvain-la-Neuve, b-1348
Belgium

Ana Carmen Mauleon Echeverria

Université Saint-Louis - Bruxelles ( email )

Brussels, 1000
Belgium

Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE) ( email )

34 Voie du Roman Pays
B-1348 Louvain-la-Neuve, b-1348
Belgium

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