The Effects of Different Reimbursement Policies on Physicians’ Decisions
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In the healthcare industry, physicians have advantages in collecting information about the revenue and the effectiveness of every prospective treatment. Moreover, physicians are reimbursed by three basic methods: base salary, fee-for-service and capitation. I propose the base model to analyze how physicians decide to accept or reject patients to maximize total utility. Furthermore, I incorporate the three reimbursement policies and analyze the effects of different repayment methods. I find that the base salary policy provides no incentives for physicians to accept patients while the fee-for-service and the capitation policies induce physicians to accept more less-profitable patients. Using backward induction, I demonstrate how social planners determine the optimal policy package to maximize the society’s utility. In addition, I prove that the base model is identifiable using treatment data. In reality, social planners can use the maximum likelihood estimation to obtain the estimated parameters in the base model.
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