An optimal contract approach to hospital financing

Existing models of hospital financing advocate mixed schemes which include both lump-sum and cost-based payments. The doctor is generally the unique decision maker, which is unrealistic in a hospital setting where both managers and doctors are involved. This paper develops a model in which managers...

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Bibliographic Details
Published in:Journal of health economics 2004, Vol.23 (1), p.85-110
Main Authors: Boadway, Robin, Marchand, Maurice, Sato, Motohiro
Format: Article
Language:English
Subjects:
Contract Services - economics
Contracts
Decision making
Decision Making, Organizational
Doctors
Economics
Fee-for-Service Plans
Finance
Financial Management, Hospital - organization & administration
Financing
Financing, Government
Health
Health administration
Health economics
Hospital Administrators
Hospital financing
Hospital-Physician Relations
Hospitals
Information Management
Japan
Lump sum
Lump sums
Managers
Mathematical models
Medical Staff, Hospital - economics
Models, Econometric
Optimal contract
Optimal rates
Optimization
Patients
Personnel Delegation
Resource allocation
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Summary:Existing models of hospital financing advocate mixed schemes which include both lump-sum and cost-based payments. The doctor is generally the unique decision maker, which is unrealistic in a hospital setting where both managers and doctors are involved. This paper develops a model in which managers and doctors are responsible for different decisions within the hospital. In this model, public authorities who provide the financing, hospital managers who allocate resources within the hospital, and doctors who assign patients to either a low-tech or a high-tech therapy have information of increasing quality on the casemix of patients. The public authorities sign with hospital managers contracts specifying some lump-sum financing and some size of a high-tech equipment. In turn, managers, who know the broad mix of patients in the hospital, sign with hospital doctors contracts that specify the non-medical resources allocated to this facility as well as some remuneration. Doctors, who know each patient’s illness severity, select the patients to be treated by the high-tech facility, and receive from public authorities some fee-for-service payment that is differentiated according to the low- or high-tech treatment used for curing their patients. What emerges is a two-stage agency problem in which contracts are designed to elicit information in the most efficient way.
ISSN:0167-6296
1879-1646
DOI:10.1016/j.jhealeco.2003.08.001