Payment schemes for resource reallocation in hierarchical medical system: Fee-for-capacity versus performance payment

Abstract

This study explores resource reallocation, or capacity sinking, in a hierarchical medical system that includes a healthcare funder, a comprehensive hospital, a community hospital, and patients with varying perceptions of different hospital levels. To help the funder better coordinate the process and induce a comprehensive hospital to willingly sink its high-quality medical resources to a community hospital, we design and evaluate two payment schemes: Fee-For-Capacity (FFC) scheme and Performance Payment (PP) scheme. In the FFC scheme, the funder pays a unit capacity sinking price to the comprehensive hospital. In the PP scheme, the sinking price is paid only if the community hospital increases the rate of patient visits. By considering different parties’ decision-making behaviors, we develop a sequential game model within a queuing framework to determine equilibrium results in terms of the patient arrival rate at each hospital, the community hospital’s capacity planning, the comprehensive hospital’s capacity sinking rate, and the funder’s capacity sinking price. Our study indicates that the FFC scheme outperforms the PP scheme in terms of social welfare, patient utility, and waiting time when the budget is low or the funder’s concern about patient utility is relatively high or low. However, both schemes are suboptimal when the budget and the funder’s concern degree are medium. We find that a hybrid payment scheme can alleviate the drawbacks of FFC and PP and help achieve system optimum.