Payment systems, insurance, and agency problems in healthcare : a medically framed real-effort experiment

Background: This study aims to examine the impact of different healthcare payment systems, specifically salary and fee-for-service (FFS) models, on service provision, patient welfare, and quality of care. The influence of payment models on healthcare delivery and patient outcomes, as well as how these models affect doctors' decision-making based on patients' insurance coverage, is not well understood. Methods: A medically framed real-effort task experiment was conducted. This study compared two payment systems: salary and FFS models. Key outcomes measured included the level of service provision, patient welfare, and quality of care. The analysis focused on how financial incentives and patient insurance coverage influenced healthcare decisions. Results: This study found overtreatment in FFS models and undertreatment in salary-based models. Healthcare decisions are significantly influenced by financial incentives and patient needs. Specifically, in FFS models, decisions are driven by self-interest, while in salary models, they are guided by patient needs. Within the FFS model, insurance coverage affects doctors' decisions and patients' benefits. Insured patients often receive unnecessary or incorrect procedures, indicating a supply-side moral hazard. Conclusions: Financial incentives and patient insurance coverage significantly influence healthcare decisions, with FFS models promoting self-interested decision-making and salary models focusing more on patient needs. This study contributes to the literature on supply-side moral hazard to health economics studies that use laboratory experiments to model medical decision-making.