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.



healthcare, doctor, reimbursement