Reimbursement policy in a healthcare system with priorities: fee for priority versus bundled priority

Abstract

Abstract This paper studies a healthcare system under two priority charging schemes. The first is a fee-for-priority (FFP) scheme under which the patients can choose to buy the priorities or not at their admission or readmission to the healthcare provider (HCP). The second is a bundled priority (BP) scheme under which the HCP receives a lump sum priority payment from patients for the entire episode of priority visits (regardless of the number of readmissions). Under both schemes, a certain proportion of revenue of the HCP (the reimbursement) is used to improve the service quality for patients. A two-stage Stackelberg game is established that captures the non-cooperative interactions between the HCP and patients, where the HCP is the leader who sets a price of priority and patients are the followers who decide whether to buy the priorities or not. We first characterize the Pareto-dominant equilibrium strategy of patients under the FFP and BP schemes, and we find that the total cost (including delay disutility and priority fee) of patients can be reduced if the patient pool is large. Although patients' minimum cost, including waiting cost and priority payment, is obtained under both the FFP and BP schemes, the prices are more flexible under the former than the latter. Finally, we demonstrate that implementing the FFP scheme can induce higher social welfare than the BP scheme.