A Game Theoretic Setting of Capitation Versus Fee-For-Service Payment Systems

TL;DR

This paper models the strategic interactions between insurers and healthcare practices using game theory to analyze incentives for adopting capitation versus fee-for-service payment systems, based on US primary care data.

Contribution

It introduces a game-theoretic framework that predicts equilibrium behaviors and incentives for payment system choices in healthcare, incorporating non-linear bonuses.

Findings

Non-extreme equilibria can be derived from a Stackelberg game model.

Incentives for capitation are present but may impact practice performance.

Both insurers and practices are somewhat motivated to adopt capitation.

Abstract

We aim to determine whether a game-theoretic model between an insurer and a healthcare practice yields a predictive equilibrium that incentivizes either player to deviate from a fee-for-service to capitation payment system. Using United States data from various primary care surveys, we find that non-extreme equilibria (i.e., shares of patients, or shares of patient visits, seen under a fee-for-service payment system) can be derived from a Stackelberg game if insurers award a non-linear bonus to practices based on performance. Overall, both insurers and practices can be incentivized to embrace capitation payments somewhat, but potentially at the expense of practice performance.