Incentive Compatible Reimbursement Schemes for Physicians

Emons, Winand (January 2010). Incentive Compatible Reimbursement Schemes for Physicians (Discussion Papers 10-01). Bern: Department of Economics

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We consider physicians with fixed capacity levels. If a physician’s capacity exceeds demand, she may have an incentive to overtreat, i.e., she may provide unnecessary treatments to use up idle capacity. By contrast, with excess demand she may undertreat, i.e., she may not provide necessary treatments since other activities are financially more attractive. We first show that simple fee-for-service reimbursement schemes do not provide proper incentives.
If insurers use, however, fee-for-service schemes with quantity restrictions, they solve the fraudulent physician problem.

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