Lecture 9 - Hospital Payment Models Flashcards
What are 4 reasons that cost and performance may vary across hospitals?
- Different populations served
- Environmental/exogenous conditions
- Quality differs
- Effort or efficiency differs
What are 2 forms of information disadvantage faced by the Ministry of Health as a principal?
- Hospitals know more about the cost of production
- MoH doesn’t know how much effort hospitals exert
What is the function to represent the costs faced by hospitals?
C = C(Q,w,r,Z,e)+ε
Q - activity
w - wages
r - rent
Z - exogenous factors
e - effort
ε - random shocks
What is a function to represent the utility experienced by hospitals?
Utility = U(R-C,e)
R - revenue
C - cost
e - effort
Get utility from profit
What does ΔC/Δe < 0 mean?
Cost should go down the more efficient you are
What does ΔU/Δe < 0 mean?
- lose utility from increased effort
What is the conflict between hospitals and payers in terms of effort?
More effort = lower costs but also lower utility
What is line item budgeting?
Funds allocated to cover the costs of specific inputs
What is fee for service?
A payment model in which doctors, hospitals, and medical practices charge separately for each service they perform.
- Can result in cost escalation since price is volume-driven
- Incentive for high-cost interventions
- Big admin burden
What is a block contract?
Contracts specified for a hospital department. Sets out the volume of activity and may set out quality.
- Type of per-capita payment model
- Less bills than FFS so less admin
What are casemix payments?
Groups of patients expected to have similar costs are grouped together and a price is estimated for their diagnosis
- prospective price based on yardstick competition
- quality often added into the payment function
What is yardstick competition?
- Find the average cost of hospital population
- Pay that price
- Hospitals whose costs are higher have to reduce costs
- Those who spend less can pocket additional money
What is the revenue function for line item budgeting?
Σz z=1 xzwz
x - quantity of each input
w - unit cost of each resource
z - line item
What is the revenue function for fee-for-service payments per patient?
ΣN i=1 xisps
N - number of patients treated
xis - quantity of each medical service for each patient
ps - price per service
This formula will find the total fee per patient
What is the revenue function for fee-for-service payments per diem?
ΣN i=1 xitpt
N - number of patients treated
t - time
xit - quantity of each medical service per day
ps - price per service
What is the revenue function for block contracts?
ΣBCbc=1 E(Xid)pd
BC - number of block contracts the hospital enters into
E(Xid) - expected number of patients to be treated in a department
pd - price paid for the typical patient in the department
What is a global budget?
When only entering into one block contract
What is the revenue function for casemix payments?
ΣJj=1 xijpj
j - type of patient
xij - actual number of patients allocated to DRG
pj - prospective price per patient type j
In which payment type is the hospital a price taker?
Casemix since price is based on yardstick competition
FFS and block contract the hospital has some control over prices via negotiation
Shleifer 1985
Created the theory of yardstick competition
- Aims to reduce informatio asymmetry; hospitals know more about the cost of production and the MoH doesn’t know how much effort they exert
- Principal sets the reward based on: hospitals own cost and the cost of other hospitals providing similar services in similar circumstances
- Principal’s tasks
1. Collect cost data; from sample/all hospitals
2. Define similar services; use DRGs
3. Define cimilar circumstances
4. Assess relative costs; comparative analysis
What are the pros and cons of line item budgets?
Pros
- very tight control of expenditure
Cons
- no incentive to reduce costs since these will lead to future budget reductions
- incentive to employ resources that will lead to budget increases (e.g. more beds in Bishkek)
- no incentives related to volume, type and quality of treatment
What are the pros and cons of FFS?
Pros
- strong incentives to treat more patients and do more for them
Cons
- no incentives for hospitals to control costs
- fee schedule to control item price not volume
- utilisation reviews are costly and don’t work
- payers try to pass on costs as higher insurance premiums or exclude high-risk groups
Utilisation reviews - someone reviews clinical notes to make sure hospital treated patients right, but hospitals always have an excuse
What are the pros and cons of block contracts?
Pros
- expenditure control
Cons
- may not forecast costs correctly
- patients may be atypical
- little incentive for hospitals to do more work (encourages waiting lists)
What are the pros and cons of casemix funding?
Pros
- equal pay (yardstick) for equal work (DRG)
- encourages efficient use of resources
Cons
- might encourage gaming (cream skimming, cost shifting, upcoding)
- cause regional variation in services if cost to hospital is greater than the average. They will stop offering that service
Which payment model is best for increasing activity?
FFS
Which payment model is best for cost control?
Very strong - line item budgeting
Strong - block contracts
Which payment model is best for efficiency?
Casemix
Which payment model is best for quality?
FFS
