The best of both worlds? The economic effects of a hybrid fee-for-service and prospective payment reimbursement system

Rong Fu, Yichen Shen, Haruko Noguchi

Research output: Contribution to journalArticlepeer-review

Abstract

Countries seeking to move away from a purely fee-for-service (FFS) system may consider a hybrid approach whereby only some procedures are paid by FFS while others are paid prospectively. Yet little evidence exists whether such a hybrid payment system contains overall costs without adverse influences on health outcomes. In 2003, Japan experienced a reform from FFS to a hybrid payment system in which only some inpatient procedures were paid prospectively. We exploit this reform to test how such a hybrid system affects overall costs and health outcomes. Briefly, we find that healthcare providers responded opportunistically to the reform, moving some procedures out of the bundled inpatient setting to FFS services, leading to no reduction in cost. There was some evidence of a moderate deterioration in health outcomes, in terms of a decline in the probability of symptoms being cured at discharge. In sum, our results suggest that in some cases, a hybrid payment system can be non-superior to either FFS or prospective payment system.

Original languageEnglish
Pages (from-to)505-524
Number of pages20
JournalHealth Economics (United Kingdom)
Volume30
Issue number3
DOIs
Publication statusPublished - 2021 Mar

Keywords

  • bundled payment
  • hybrid payment system
  • price regulation
  • substitution behavior

ASJC Scopus subject areas

  • Health Policy

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