Medical Payment System Of Choice

Payment is a critical factor in any transaction, linking demand and supply. The complexity and importance of the good or service is reflected in the complexity of the payment process. Once a stable payment mode is established in a long-term transaction, it becomes the"payment system"of that transaction. Health care services are complex and thus payment systems used in this sector are also complex. Many different types of payment system, such as"retrospective payment","prospective payment"and"unit payment", are used in different circumstances in health services transactions. All transaction of health services involves these payment modes."Unit payment"can be further classified into four sub-types:"fee for service","per-diem payment","price per case"and"capitation".This paper investigates how to choose the optimal payment system for health care services. The traditional model balances controlling the cost of health care with ensuring the quality of the service provided. This approach is certainly a useful method and has thus been significant in the development of health insurance policy. However, it can not fully address the complex'real-world'problems of payment. For example:1. Different types of payment modes occur in the same health service which raises the question of, if there is an optimal system, why should this system not replace the others?2. Some payment modes which have a strong capacity to control costs, such as"capitation"(adopted by Health Maintain Organizations (HMO)) are implemented by the provider instead of the payer– yet do these service suppliers truly have an incentive to limit costs?This paper considers these problems by retreating from the perspective of"health insurance"and returning to the frame of market transaction in health care services. The logical basis for this paper is the establishment of a payment system resulting from the negotiation of the both parties to the transaction as opposed to a unilateral decision. As such, Contract Theory is to explain and analyze the impact of adoption of particular payment systems.Transaction can be considered as the transfer of property rights, with clear measurement of the value of these rights the underlying premise."Measuring Cost"and"Monitoring Cost"are the key factors impacting the choice of payment system. This is the basic assumption of Contract Theory. It is also the essential framework used in this paper for analyzing the choice of payment system. Using this framework, the related problems were considered in greater detail, including which rights should be measured, which behaviors should be monitored, and how to assess transaction cost. Both theoretical analysis and practical investigation were undertaken.The theoretical analysis starts from an understanding of the character of health care market, proceeding to look for the best approach to health care services transactions, and then considering the economics function of payment system. Different economic theories'ability to explain the choice of payment mode is also compared, with Contract Theory found to be the most useful. Using Contract Theory, the payment system chosen should minimize the sum of Measuring Costs and Monitoring Costs. It is said that if the actual health care service conditions are not known, it is not possible to evaluate which is the optimal payment mode. As such, it can be inferred that the difference payment modes seen in health services are a result of the wide variety of situations faced in practice in these services. Therefore, this explains why single"best"payment systems do not predominate over the other possible systems in practice.These considerations are illustrated by the case study in this paper of Beijing Health Insurance Center contracting with a psychiatric hospital for the payment of services for psychiatric inpatients. Both parties to the agreement ultimately chose a flat per-diem payment method rate which is not seen as optimal from a traditional viewpoint. However, using Contract Theory, their choice is shown to be rational and optimum given the actual conditions both parties faced in practice..This paper also considers the behaviors of medical practitioners in the study hospital after the payment system was changed from fee for service to per diem payment. It is commonly thought that per diem payment prolongs the length of stay (LOS) of inpatients. However, this did not occur in this case. It was important to consider whether this phenomenon was related to specific characteristics of the study hospital, or whether it was generalizable to other services in China. As such, the organization and structure of the payment system and other aspects of the study hospital were compared to other public hospitals in China. No major differences were found and thus the conclusion of this study is that per diem payment will not result in hospital physicians unnecessarily prolonging patient length of stay under the current organization and structure of public hospitals in China.Since transaction cost and property rights are always fundamental determinants of any payment system, the optimal payment mode may change when these determinants are altered. Therefore, this paper analyzes the impact of these factors in the work of different sectors. It was found that improvements in medical technology, information technology, measurement tools and service delivery systems can contribute to greater clarity in setting prices. This can also clarify the property rights involved and reduce Monitoring Costs.