The Impact of Reimbursement Policy on Social Welfare, Revisit Rate and Waiting Time in a Public Healthcare System: Fee-for-Service vs. Bundled Payment

Abstract

This paper examines the impact of Fee-for-Service and Bundled Payment reimbursement schemes on the social welfare, the patient revisit rate, and the patient waiting time in a three-tiered public healthcare system comprising: (a) a public funder who decides on the reimbursement rate to maximize the social welfare, (b) a public healthcare provider (HCP) who decides on the service rate (which affects the revisit rate and operating cost), and (c) a pool of (waiting time-sensitive) patients who decide whether or not to seek elective treatments. We focus our analysis on: (1) a Fee-for-Service (FFS) scheme under which the HCP receives the payment each time a patient visits (or revisits); and (2) a Bundled Payment (BP) scheme under which the HCP receives a lump sum payment for the entire episode of care for each patient (regardless of the number of revisits). By considering an M/M/1 queueing model with endogenous arrivals and revisits, we analyze a three-stage Stackelberg game to determine the patients' initial visit rate, the HCP's service rate (which affects the revisit rate), and the funder's reimbursement rate. This analysis enables us to compare the equilibrium outcomes (social welfare, revisit rate and waiting time) associated with the FFS and BP schemes. We find that when the patient pool is large, the BP scheme dominates in terms of higher social welfare and lower revisit rate, but the FFS scheme dominates in terms of waiting time. However, when the patient pool is small, the BP scheme dominates the FFS scheme in all three performance measures.