- Research Article
5
- 10.2307/252228
Payment Plans and the Efficient Delivery of Health Care Services
- Sep 01, 1973
- The Journal of Risk and Insurance
- Morton I Kamien + 1 more +1
The purpose of this study is to develop economic incentives for consumers of care services that will lead to efficient delivery of care of any specified quality. The importance of this investigation derives from the rising cost of services and the resulting quest for new organizational structures for their delivery. These new structures are supposed to utilize resources more efficiently than current institutions and thereby make services available to a broader class of consumers. The authors posit a care delivery that provides two kinds of services-preventive care and treatment. Provision of each kind of care is costly. The individual selects a level of preventive care that maximizes expected utility, where utility is a function of disposable income. It is shown that the level of preventive care chosen by the individual will not in general be appropriate for the minimization of the total costs of care. The possibility of selecting a payment scheme for services is investigated, ranging from full prepayment to fee-for-service compatible with minimization of expected total cost. The main result is the development of such a payment plan. Few issues capture the public's attention more than care. This is not surprising in view of rapidly rising care costs and the realization that sooner or later all will need such services. In addition, ghetto dwellers, rural inhabitants, Morton I. Kamien, Ph.D., is Professor and Chairman of the Department of Managerial Economics and Decision Sciences in Northwestern University. He was formerly on the faculty of the Graduate School of Industrial Administration of Carnegie-Mellon University. Nancy L. Schwartz, Ph.D., is Professor of Managerial Economics in Northwestern University. She was formerly on the faculty of the Graduate School of Industrial Administration of Carnegie-Mellon University. Professors Kamien and Schwartz have coauthored articles which have appeared in Econometrica, American Economic Review, Management Science, Journal of Economic Theory, and Journal of Applied Probability. Financial assistance of the Health Services Research Center of the Hospital Research and Educational Trust, and Northwestern University is gratefully acknowledged. The authors retain all responsibility for views expressed. This paper was submitted in August, 1972. and the aged, among others have special concerns regarding accessibility of medical services, apart from and in addition to cost. All this has prompted the government to seek ways of supplementing and improving the present essentially private system of care delivery. Among the measures already undertaken, the best known provide insurance coverage for a variety of medical expenses for the poor and the aged. More direct measures are contemplated, including Federally subsidized health services planning and delivery systems. This paper deals with an economic aspect of such a system. There will be multiple criteria in selecting an organizational structure for a care delivery system. For example, one may ask whether the organizational structure is conducive to providing a mix of services consistent with the needs of its constituency. Will it be able to meet changing needs of its clients? Does it pro-
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