Discussion Paper Details

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Title: Optimal Price-Setting in Pay for Performance Schemes in Health Care

Author(s): Søren Rud Kristensen, Luigi Siciliani and Matt Sutton

Publication Date: March 2014

Keyword(s): optimal price-setting, Pay for Performance and provider behaviour

Programme Area(s): Industrial Organization

Abstract: The increased availability of process measures implies that quality of care is in some areas de facto verifiable. Optimal price-setting for verifiable quality is well-described in the incentive-design literature. We seek to narrow the large gap between actual price-setting behaviour in Pay-For-Performance schemes and the incentive literature. We present a model for setting prices for process measures of quality and show that optimal prices should reflect the marginal benefit of health gains, providers? altruism and the opportunity cost of public funds. We derive optimal prices for processes incentivised in the Best Practice Tariffs for emergency stroke care in the English National Health Service. Based on published estimates, we compare these to the prices set by the English Department of Health. We find that actual tariffs were lower than optimal, relied on an implausibly high level of altruism, or implied a lower social value of health gains than previously used.

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Bibliographic Reference

Rud Kristensen, S, Siciliani, L and Sutton, M. 2014. 'Optimal Price-Setting in Pay for Performance Schemes in Health Care'. London, Centre for Economic Policy Research.