Paying for Health

The CLAHRC WM director has long been fascinated by the link between how health is paid for and access, quality, and satisfaction. The famous RAND RCT showed that fee-for-service systems resulted in more satisfied patients, but at the cost of over-servicing, compared with capitation payment.[1] This is consistant with economic theory. No changes in quality were detected. Subsequent sharp improvements in care quality in the public Veterans Affairs system vs. other American institutions has led many to speculate that the profit motive is inimical to quality.

So what happens when hospitals convert from not-for-profit to for-profit status? Joynt, Orav and Jha, conducted a controlled before and after study among no less than 237 converting hospitals and 631 matched control hospitals.[2] While the converting hospitals improved their financial margins, no significant changes were observed for adherence to quality standards, nurse to patient ratios, access for poor or minority patients, or mortality. The primary outcomes of interest were expressed as differences in differences, meaning that each hospital acted as its own control, thereby mitigating bias. The authors did not find any effect of time since conversion.

While on the subject of behavioural economics, a paper by Whaley and colleagues will also provoke readers.[3] This study concerns the effect of price transparency on utilisation rates for various services in an insurance-based system involving an element of cost-sharing with patients. The intervention was simple – making prices available online to prospective service users. Most people did not use the service, but given an insured population of half a million individuals, there were still plenty who did. These people were less likely to use a service (lab testing, imaging or clinician visit) than those who did not avail themselves of the pricing service.

Was this because they were already predisposed to parsimony? On the contrary: researchers looked at the behaviour of both groups before introduction of the online pricing service, showing that people who used the service had higher than average utilisation prior to the information service, and lower utilisation after it had been introduced. Making the service available seems to have made them more discriminating consumers.

— Richard Lilford, CLAHRC WM Director


  1. Davies AR, Ware Jr JE, Brook RH, Peterson JR, Newhouse JP. Consumer acceptance of prepaid and fee-for-service medical care: results from a randomized controlled trial. Health Services Research. 1986;21(3):429.
  2. Joynt KE, Orav E, Jha AK. Asociation between hospital conversions to for-profit status and clinical and economic outcomes. 2014; 312(16): 1644-52.
  3. Whaley C, Schneider Chafen J, Pinkard S, Kellerman G, Bravat D, Kocher R, Sood N. Association between availability of health service prices and payments for these services. 2014; 312(16): 1670-6.

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