Scandinavian Working Papers in Economics

Working Papers in Economics,
University of Bergen, Department of Economics

No 01/08: Paying for Performance in Hospitals

Burkhard Hehenkamp () and Oddvar Kaarbøe ()
Additional contact information
Burkhard Hehenkamp: Department of Economics and Social Sciences, University of Dortmund, Postal: D-44221 Dortmund, Germany
Oddvar Kaarbøe: Department of Economics and Health Economics Bergen, University of Bergen, Postal: Hermann Fossg. 6, N-5007 Bergen, Norway

Abstract: A frequent form of pay-for-performance programs increase reimbursement for all services by a certain percentage of the baseline price. We examine how such a “bonus-for-quality” reimbursement scheme affects the wage contract given to physicians by the hospital management. To this end, we determine the bonus inducing hospitals to incentivize their physicians to meet the quality standard. Additionally, we show that the health care payer has to complement the bonus with a (sometimes negative) block grant. We conclude the paper relating the role of the block grant to recent experiences in the American health care market.

Keywords: Paying-for-Performance; Quality; Hospital Financing

JEL-codes: D82; I18; J33

23 pages, March 12, 2008

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