Health Sciences 3840B Lecture Notes - Lecture 11: Risk Pool
2. Paying for services and also paying to bear risk
3. If you go to the dentist then after you get the service that triggers a payment
Can think about efficiency in terms of how much money you have to put into HC services
Taxes and insurance are to raise total amount of revenue
This lecture is now that you have a fixed amount of revenue that you’re going to get, what is the most efficient way to distribute it
Financial incentives are a key part of that
How does this impact services?
If you have some other health care providers that are working in the same practice, if you’re going to only get a fee for the service the physician provides, financial
incentive for only the physician to provide that service, even if someone else could do it just as well
If you have a list of services that you’ll get a fee if you provide, and other services that can be provided by a physician or nurse or someone else, you have a
financial service to provide incentives off that list over other services
Capitation –no longer incentive to provide services that are reimbursable
You don’t get more revenue to provide more services
Could also discourage the use of necessary services…
If you’re going to have the same patient enrolled in your practice for several years, and going to get the same amount of money for that one patient, you want to
reduce the total cost of services surrounding this patient –you would rather use preventative services vs paying for services that are needed with adverse health
outcomes later on
Principal contracts agent to do something
The principal is the provincial government, regional health authority
Agent is health care provider
If they had the same objective, it wouldn’t matter that the principal is asking the agent to do the work, there is no economic problem and it doesn’t matter that
there is a diff person carrying it out
If you have diff objectives but can observe the agent, you can pay them on the conditions that they do what you want
The principal’s objective is to motivate the agent to act in the best interests of the principal, through incentives
Example of principal agent problem that isn’t related to health care
The individual is the principal and the provider is the agent
How informed is everyone?
Patients are paying taxes but there is no cost sharing
Who is the principal? It is who is providing funding to the provider
Principal is principal government, provider is the agent
For hospitals
Intermediary: RHA
RHA is the principal because they’re the ones that make the last funding decisions that concern the providers
If the province has some objective, it makes sense to introduce another intermediary between province and hospitals because that intermediary can have more
info abou the specific region that they’re servicing
Generally more efficient if the individuals making the decisions have more information
RHA can make better decisions than provincial government –decentralization and efficiency gains
Can have combinations of all of these
Ex. Being paid by commission means the employees carry the financial risk, they might quit because they cannot bear that risk
What are the financial incentives in these 5 different alternatives, who is bearing risk and what is the role in that risk
Funding mechanism induces provider (agent) to provide care in a cost-effective way
Hard to observe if somebody is providing needed or quality care –can’t monitor everything
In general if you have fixed payments, all the risk is going to the provider –whether your patient has no problems or a lot problems, you bear that risk
The opposite: variable retrospective payments: take the risk off the provider, whatever care you provide for that patient is reimbursed, party that is funding has
no control over costs, no way to ensure that there is unnecessary care provided
Going to provide that service because you’re going to get reimbursed for it
But going to get the same amount no matter how much effort you put into providing that service
-you’ll provide it in the least cost way
Provider now has incentive to provide the least cost services
They have an incentive to under treat patients, the payment is fixed no matter what treatment is actually provided
If you have low risk patients they’ll cost you less, and if you’re going to get paid the same amount for each case then you try to find low cost patients
You can’t perfectly observe everything, if you have diff levels of severity of cases and some of them qualify for higher reimbursement, incentive to assign patients
to a higher category –lots of marginal borderline cases that are a little bit more higher risk, hard to determine where the line is
Costs are contained, not necessarily minimized because there was less treatment required or in fact lower costs
Lec 11 Health Care Funding
May 6, 2018
3:59 PM
Health Economics Page 1